In October, 30 million Americans had accounts that were "under collection," according to ACA International, a trade association for debt collectors. That's one in 10 of the population who are dealing with collection agencies. "Under collection" means, for many, a constant bombardment of calls from debt collectors that sometimes amounts to serious harassment. Imagine -- if you're lucky enough never to have experienced it -- the stress that causes. Small wonder many reach a state of desperation in which they feel they're drowning in debt, and are prepared to reach for any lifeline, no matter how doubtful the claims of the people throwing it.
Preying on the desperateAnd some of those claims are highly dubious -- at least to those of us who have the luxury of objectivity. We can scoff at radio and online advertisements that promise to rid us of our obligations at a cost of a few pennies on the dollar, or that claim an ability to eliminate crippling debt with virtually no pain within a short time. On Oct. 21, The Washington Post cited one such ad that said: "If you owe $30,000, you could resolve your debt in as little as 24 to 48 months." Well, maybe. But a few days before the Post's piece appeared, the National Association of Consumer Bankruptcy Attorneys published a report that said half-a-million Americans, who between them owe $15 billion, are now participating in the sort of debt settlement programs that often make such claims. As few as one in 10, the study asserted, is likely to emerge with a successful outcome. Even that number may be too high. A couple of years ago, Consumer Reports Magazine quoted Anamaria Segura, a New York City attorney whose law firm works each year with about 1,000 clients who have debt issues, " I've never seen a client benefit from debt settlement, other than the initial peace of mind they experience before everything goes sour."
Credit card debt an issueIt's not easy to find data that break out credit card debt from the other obligations faced by those 30 million Americans identified by ACA International as "under collection." But it seems reasonable to conclude that many millions of them have problems with their plastic. If you're one of them, it might be too late to do deals with your credit card companies. It may be that your debt has already been sold on to the collection agency that keeps calling you. But if you've only recently fallen behind with your payments, you could still take the initiative by calling your card issuers.
Dealing with credit card companiesToo embarrassed? Don't be, for three reasons:
- Ask yourself how many calls from people like you the call center agent you speak to has dealt with over the last few years. It's likely to be hundreds or thousands, and good agents are trained to be sympathetic and helpful.
- Consider your options. Calling to negotiate with credit card issuers should certainly come before allowing your debt to fall into the hands of debt collectors.
- You may have been overly optimistic (or even stupid) in borrowing the amount you did, but your credit card company made the same mistake in lending you that much. And it has multi-million dollar software applications and highly paid risk managers that are supposed to stop it making such mistakes. You both share the error, and you both could benefit by working together to ensure you each suffer the least harm possible.
Know what kind of help you needBefore you make that call, spend a couple of hours getting a grip on your finances. Add up all the things you have to spend to survive (including minimum payments on your credit cards and other loans) each month, and deduct that from your income.
If you have a positive figure, you might not need your credit card companies' help to get by, providing you budget carefully. That would be great, because your credit score should be unaffected. If you have a negative figure, you should at least know by how much you need to reduce your card payments, and can propose a sum to the call center agent(s).What if your negative figure is so big that your card issuers won't play ball -- or if you're already fielding calls from collection agencies? Then you should talk to a reputable, nonprofit, credit counseling organization, lists of which are available from the Department of Justice and the National Foundation for Credit Counseling. As a last resort, you may end up choosing personal bankruptcy. But even that's much less scary than it sounds, and way better than an endless stream of possibly abusive calls from creditors and collection agencies -- not to mention the law suits that usually follow. What you shouldn't do is swim with the sharks who run many debt settlement companies. They might eat you alive.