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Surviving Debt: Rule #1: Prioritize Debts Whose Non-Payment Immediately Harms Your Family

Non-payment of certain high priority debts have sudden and dire consequences for your family. Deal with these particular debts immediately—either pay these high priority debts first or otherwise follow advice in this book on how to manage these debts.

Never pay smaller or lower priority debts just because you cannot keep up with high priority debts. In other words, don’t think “if I can’t pay my mortgage, at least I will keep up with my credit cards.” This is a bad idea.

Surviving Debt: Rule #2: Don’t Let Debt Collectors, Credit Score Worries, Stress, or Other Factors Force You into Bad Decisions

Don’t Make Decisions Based on Debt Collection Harassment. A debt collector’s job is to convince you to pay its debts first. Instead, make your own decision as to which debt has the highest priority. The collector contacting you most aggressively is often collecting on a low priority debt. Do not be persuaded; just get the debt collector off your back. Chapter 2 sets out nine ways to stop debt collection harassment, including four different sample letters that typically will stop collectors from contacting you.

Surviving Debt: Rule # 5: Know Whether and When to File Bankruptcy

How Bankruptcy Can Help. Federal law provides you with the right to file bankruptcy and this is a powerful tool to deal with your financial issues. Bankruptcy stops, at least temporarily, foreclosures, repossessions, utility terminations, garnishments, and other collection actions against you. Bankruptcy can restore your utility service. It allows you to keep your home or car by getting caught up on back-due payments slowly over time. For car loans, you may even be able to lower your monthly payments.

Surviving Debt: Introduction

You may be tempted to take out a new loan to deal with pressing debt, or to refinance some of your old loans into new loans that offer relief at least in the short run. This chapter examines when this makes sense and when it does not.

Taking on new debt when you cannot make all your payments is a serious undertaking that can get you into a lot more trouble, so you must carefully consider a number of factors before deciding to do so. There are at least four guiding principles in deciding whether to take on a new loan to pay off old debt:

Surviving Debt: Borrowing from Friends and Relatives

Borrowing from friends and relatives avoids some of the worst traps in borrowing from a lender. You are unlikely to be charged high interest rates or hit with hidden charges or have to put up your home or car as collateral. There is nothing wrong with asking for and accepting help to get you through a tough period. Of course, if your troubles are of a more long-term nature, both you and your friends or family will have to recognize the money is more likely to be a gift than a loan.

Surviving Debt: New Credit Card Debt

You may be tempted to pay off old debts using your credit card. This can be done directly by paying debt collectors with your credit card or by taking out a cash advance using the card. Some credit card companies send you “convenience” checks which allow you to pay for your debts with the check. The hitch is that these checks can come with fees and sometimes high interest rates. Or you can pay for debts using the card indirectly by using it to pay for necessities that you usually pay in cash, freeing up cash to pay down your debts.

Surviving Debt: Credit Union Loans

Particularly where you have maxed out your credit cards, another option to obtain a new loan is from a credit union. Credit unions that have a federal charter are restricted to charging you a maximum of 18% interest. An exception is made for shorter term, small dollar loans where you can be charged 28% plus a $20 application fee.

Surviving Debt: Loans to Avoid

Chapter 7 lists ways to get into even more trouble when you are in financial difficulty. Described there are types of loans that you should avoid, even if you have pressing debts:

Surviving Debt: Introduction

When buying a car on credit, you almost always must put up the car as collateral to finance the purchase. When you lease a vehicle, the creditor still owns the vehicle, and you pay to use it. Sometimes consumers also use their cars as collateral for an unrelated small loan. Most of these are high-cost auto title or “auto pawn” loans, which are legal in some states but illegal in others.

Surviving Debt: Strategies to Prevent Repossession

Keeping Current on Car Payments. Do not pay credit card debts, medical bills, or other low priority debts ahead of car payments. If you skip payments on low priority debts, you will not be in immediate danger of losing your property. Skip one or two car payments and you risk losing your car.

Surviving Debt: What to Do After Your Car Is Repossessed

Get Back Personal Property Left in the Car. Creditors cannot keep your personal property that was left in your car after it has been repossessed. The lender can only keep the car itself. As soon as possible, demand both by phone and in writing any property left in the car, specifying each item. Make the request quickly before the property disappears.

Surviving Debt: Creditors’ Collection Efforts After the Repossession Sale—The Deficiency Action

After repossession, the creditor will sell your car and apply the sale price (after deducting all repossession and sale expenses) against the amount you owe. If the net sales proceeds are more than the amount you owe, the creditor must pay you the “surplus.” Far more commonly, however, the net sale proceeds will be less than the amount you owe because repossession sales typically result in a lower sale price and there will be significant expenses related to the car’s sale, storage, and repossession.

Surviving Debt: Buying a Replacement Vehicle

If your car is seized or you have to sell it because monthly payments are too high, you still may need a car for essential transportation. Here are tips on buying a safe, reliable, and affordable used car as a replacement.

Surviving Debt: Wage-Related Options

Eliminating Unnecessary Payroll Deductions. If your income has gone down, you may be having excessive amounts deducted from your pay for income taxes. Check with your employer or with an accountant if necessary. If you are having trouble meeting your obligations, you are better off having the income now rather than getting a tax refund next year.

Surviving Debt: Income Assistance

Unemployment Compensation. You should always think about unemployment compensation when you have lost your job for any reason or when your hours have been significantly reduced. You should apply as quickly as possible after your employment is terminated or reduced.

Surviving Debt: Food Assistance

Supplemental Nutrition Assistance Program (SNAP). SNAP, formerly known as “Food Stamps,” is a benefits program that can supplement your monthly food budget. Some states have given SNAP a different name, like “CalFresh” in California, “Food Share” in Wisconsin, or “3 Squares VT” in Vermont, but these are all the same federal SNAP program.

Surviving Debt: Emergency Programs

Emergency Programs. Some states, communities, and private organizations—such as the United Way, Salvation Army, and the American Red Cross—have emergency funds available to help with basic needs, such as food, shelter, medical care, clothing, or transportation. Often, these programs provide referrals to agencies, repurposed furniture, and clothing and/or provide vouchers for one-time needs rather than direct cash.

Surviving Debt: Veterans Benefits

Veterans Disability Compensation. The Department of Veterans Affairs (VA) offers a service-connected disability benefit paid monthly if you suffer from a disability incurred in or aggravated by your military service. You are eligible if you have an honorable or general under honorable conditions discharge. The VA decides eligibility on a case-by-case basis for veterans with less than honorable discharges. With a few exceptions, the VA compensation program is not a means-tested program.

Surviving Debt: Reporting Change in Income If You Receive a Needs-Based Benefit

If you are receiving a needs-based benefit—such as SNAP, TANF, Medicaid, SSI, certain veteran’s benefits, or receiving unemployment compensation—report to the agency administering the needs-based benefit any changes in income that may affect your eligibility. Examples could be increased wages from overtime, a temporary job, or renting out part of your home. Failure to do so could result in a fraud determination or a requirement that you return overpayments. Check with a legal advocate if you have questions about what and when to report changes.

Surviving Debt: Other Ways to Increase Income

Other ways to increase the family income include taking a second job temporarily, increasing overtime, or collecting debts owed to you by others. Also consider whether you have space in your home that you can rent or whether you have a marketable skill that you are not using. If you have made a voluntary decision not to work, financial difficulties create an opportunity to reconsider. Any choice to return to the workforce in this circumstance must be weighed against the potential increased costs of child care, taxes, and other expenses.