Saturday, January 2, 2010

Don't hide debt problems from collectors, friends or family

Building a support system can help you get through

By Sally Herigstad

To Her Credit
To Her Credit, Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006).

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Question for the expert

Dear To Her Credit,
I am having financial trouble because my alimony payments have just ended and my home business has failed. I was never making much from my home business in network marketing anyway.

I am seeking employment, but I can't make credit card payments at this time. I've missed one month of payments, and for the past week, I have been receiving phone calls throughout the day from two banks that I owe. Out of fear, I have yet to speak to these banks. I see the bank names on caller ID, and I don't answer the phone.

When these banks find I'm in the process of seeking employment and want to pay my debts but cannot pay at this time, what will their actions be? Can they send someone out to my home, or are they only allowed to contact me by phone and mail? Thank you for your help. -- Charlee

Answer for the expert

Dear Charlee,
Being unemployed and unable to pay your bills is very distressing, as anyone who has been there knows. However, it sounds like right now you are more fearful than you need to be. If you understand what is likely to happen and you know your rights, you can lay the worst of your fears to rest.

The bank generally won't know you are unemployed unless you tell them. Andy Jolls, CEO of, says, "There's nothing in your credit file that shows you are unemployed. Your employment situation and how much you make are not factors in your credit score."

You may want to go ahead and tell the bank you are between jobs. In fact, you may qualify for a forbearance program if you are unemployed for long and have no other income. (To learn more, read "Credit card forbearance programs offer reprieve from debt.")

If 10 percent of the population is unemployed, probably at least 10 percent of the bank's customers are in the same situation you are. Jolls says, "I haven't heard of anybody telling the credit card companies, 'Hey, I'm unemployed,' and the credit card companies raising their rates or closing down their accounts. My sense is that would be discriminatory."

If your worst fear is that someone from the bank or a collection company may come to your home, you can stop worrying about that. Creditors are not allowed to come to your home or place of business, nor are they allowed to talk to your employer, neighbors or anyone else about your debts.

Creditors can call you on the phone -- but only until you tell them to stop. Next time the phone rings and it's one of your credit card companies, answer the phone but don't discuss your account with them. Tell them to contact you by mail only. They must comply.

When they do contact you by mail, be sure to respond. Keep a copy of all correspondence for your files.

As soon as you're not worried about creditors showing up on your doorstep or you've stopped them from calling you several times a day, it's time to make a plan for paying off your debts.

To make a real difference in your financial situation, you must become very honest with yourself and with the people who care about you. "If she has this level of secrecy around not wanting to share with the banks, her family members probably don't know either," says Jolls.

When a home business fails, people's friends often don't even know. If your friends don't know you're short of money, they're going to ask you to go out to dinner and do other things to spend money. "If they know," says Jolls, "they're going to say, 'Can we get together and make pasta?'"

If you level with your parents, they may be able to help. Many parents are willing to help their grown children go back to school or to even let them live at home if they need to.

You may even want to talk to a counselor from a nonprofit credit counseling agency about your situation. They have helped many people like you. You may be surprised how much their experience and perspective can help. You can find accredited counselors through the National Foundation for Credit Counselors or the Association of Independent Consumer Credit Counseling Agencies.

I understand your hesitation to discuss debt. Being secretive about your financial troubles only makes them worse. Being more open and building your support system can help you get through even tough times like these.