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Debt Management

Credit Counseling

Women and Money

Which bills to pay first

from Family Circle, January 2004

Loretta Vineyard, 47 (pictured below), a homemaker and mother of six in Austin, Texas, saw her family's lifestyle shift dramatically when her husband, Wayne, 48, lost his job as director of information technology work with Motorola three years ago. Wayne is substitute teaching as he job hunts, and the family is cutting every corner it can. Still, the Vineyards have had to tap their home equity and Wayne's pension to stay afloat. "We've been through tough times," say Loretta.

I can relate. "Two years ago my husband and I were downsized from our jobs. He decided to focus on launching a business while I sought freelance work. Our income plummeted, and we took out a home equity line of credit and second mortgage to survive. When that ran out, we pilfered our retirement accounts. When they were exhausted, and had to sell our house. Today we live in a less costly apartment, and our freelance income has picked up, but we still dip into our replenished savings more than I'd like, which makes me panicky. If we deplete that, then what?"

We're not alone. The unemployment rate of six percent as of October means that about 8/8 million people looking for jobs can't find them, says Gary Steinberg, a spokesperson for the Bureau of Labor Statistics. Credit card debt has also risen, and credit card delinquencies have been at a record high since the end of 2002. "That indicates things are going on in the economy that are making it harder for people to pay their bills," says Tracey Mills, a spokesperson for the American Bankers Association. What can you do if your family is caught in this bind? If you're getting calls from creditors wanting to be paid now, you may be tempted to pay the ones making the most noise to get them off your back. But that may not be the wisest move. Here's expert advice on which bills to pay in what order.

How to Prioritize Your Debts

Your family's health and well-being come first, says Jill Gianola, owner of Gianola Financial Planning in Columbus, Ohio. "Your need a place to live. That means putting your mortgage or rent at the top of the list." Utility and grocery bills come next, then health insurance if you're paying the premiums, then your car payment sand auto insurance--especially if you live in an area without mass transit. "You need the car to get to work or find a job," says Bill Gustafson, Ph,D, senior director of the Center for Financial Responsibility at Texas Tech University in Lubbock.

Next come credit card charges, medical bills, personal loans and other unsecured debts. If you can afford to keep current with only one, make it credit card debt, say John Ventura, a consumer advocate and attorney in Brownsville, Texas. "Credit card companies are the most aggressive in going after late payments," he says. They may charge hefty late fees and raise your interest rates, says Gustafson, and they're quick to report late payments, this can damage your credit rating and hurt your standing with prospective employers and landlords, who may check credit reports to gage financial fitness.

Don't just ignore the bills you can't pay, though. Having an account written off as bad debt will do more damage to your credit rating. And if you think you're feeling pressured to pay now, says Ventura, wait until collection agencies start calling. Instead, "sit down and calculate how much you can pay on each debt on a regular basis," says Michele Johnson, a board member of the National Foundation for Credit Counseling in Silver Spring, Maryland. Then call your creditors and try to work out a payment plan. You want to make these calls before falling behind to avoid financial penalties and give yourself a psychological advantage. "If you wait until they call you, you're on the defensive," says Howard Dvorkin, C.P.A., founder and president of Consolidated Credit Counseling Services, Inc.™ in Fort Lauderdale, Florida.

These calls ay be easier to make if you remember that most creditors want to help you meet your bills.

If creditors are uncooperative, you might want to consider working through a credit-counseling services. "If it's agreed you should go into debt management, a counselor will negotiate with your accounts," says Johnson. To find a reputable service near you, visit the National foundation for Credit Counseling Web site (www.nfcc.org) or the Association of Independent Consumer Credit Counseling Agencies Web site (www.aiccca.org). If you decide to go this route, it's best to do so before your accounts fall in arrears.

Accounts are often turned over for collection when someone hasn't made payments or responded to phone calls or late notices in six months. Collection agencies usually make their money by keeping a portion of what they collect for the creditor or buying debt at a discount and keeping everything they collect. The Fair Debt Collection Practices Act of 1978 restricts where and when agencies can call (no calls at home before 8 A.M. or after 9 P.M., for example) and prohibits them from discussing private financial matters with third parties or making harassing or threatening calls of any kind.

If an agency contacts you, says Ventura, you can buy time by sending a certified letter within 30 days asking that the debt be verified. The agency can't try to collect during this process. Never offer information on where you work or bank that an unscrupulous agency could use against you,. If you can pay part of the debt, try to settle, but don't pay until you get the agreement in writing. If you can't settle, try to work out a payment plan. You can tell an agency, "I can't pay anything now. Please stop calling." But if you pay nothing or too little or ignore letters or calls, the agency may sue---especially if a large sum is at stake. A consumer attorney can advise you on your rights and help you determine if an agency is acting illegally. You can locate one through the National Association of Consumer Advocates (www.naca.net).

 

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