Solutions to Debt Problems

Section 6-7

• “Sometimes you gotta wreck the truck, to get the insurance money, to make the truck payment.”

• -Larry the Cable Guy

Collection Agencies

• Companies that specialize in collection of past debt

• Methods: Collection letters, late-night telephone calls, abusive language, and threats of being fired

• Luckily Congress passed the Fair Debt Collection Practices Act

The following actions are illegal

• Threatening violence, using obscene language, publishing shame lists, making harassing calls at night

• Contacting a debtors employer• Claiming the collector is a Federal agent• Revealing credit information to third parties• Using false or deceptive means to obtain

information about a debtor

Garnishments

• When a creditor can actually take part of your paycheck to repay the debt

Typical Debt Problems

• Young family, more than average number of children but average income

• Parents are care-free and impulsive, buy what they want now

• Move frequently, read less, and don’t take responsibility for their actions

• Single adult is the head of the home

Clear signs of too much debt

• Balances increase, longer repayment periods, still paying last month’s bills as this month’s come in, cash advances on credit cards, and slowly all your income goes to paying debts

Solutions

• Wage Earner Plan or Chapter 13• Alternative to bankruptcy where the court

divides up your paycheck to creditors.• This allows the person to hold on to personal

property

Solutions

• Bankruptcy – Also called a liquidation sale• Where a trustee sells most of the person’s

material items at public sale with most of the money going to the creditors

Pawnbrokers• Hold on to collateral and loan the money at a

high interest rate.• Pawnbrokers loan 40% of the collateral and

charge a rate of 36-50% interest• Often times the person doesn’t

save the money to pay back the loan and lose the collateral

Loan Sharks

• Illegal• Very high rates – • 100-500% interest rate• Collection practices

involve violence

Credit Counseling• Best solution• Agency that creates solutions to your debt and

teaches you to properly manage money• Allows creditors to

work with you to pay back your debt without filing for bankruptcy and ruining your credit