Millions of Americans are dealing with debt overload every day. If you’re struggling to pay your loans, credit cards or other bills, here are some steps you can take to begin managing your debt problems.
Create a budget.
Try to get a clear picture of your monthly income and expenses.
Contact your creditors about easier ways to make your most important bill payments.
Have a strategy for saving money on interest and fees.
Consider getting help from a reputable credit counselor.
Know your rights if a debt collector contacts you.
Know someone who’s behind on their bills? Maybe debt collectors are calling for payment? The Federal Trade Commission’s new debt collection video can help you understand your legal rights – and may lower your stress level. In the video, you’ll see how bad debt collectors try to get you to pay up. Bad debt collectors will say anything to get you to pay – and they’ll make it feel urgent to get you to pay immediately. But there are laws to protect you. Debt collectors:
Can’t call you before 8 a.m. or after 9 p.m.
Can’t use profanity, threaten violence or harass you to pay
May not lie or pretend to be someone they’re not
Cannot ask you to pay a debt that doesn’t even exist
Can’t threaten you with arrest or deportation
Cannot tell anyone – except your spouse or attorney – about your debt
If a debt collector calls and uses any of these tactics, hang up and report it to the FTC. Remember: you have the right to be treated fairly – no matter what.
Counting every penny on your credit and debit card statements can help detect fraud
Most people looking at their bank statements would probably notice if their credit or debit card were used without their approval to purchase a big ticket item, and they would quickly call their bank or card issuer to report the error or fraudulent transaction. But consumers are less likely to be suspicious of very small charges, including those less than a dollar…which is why criminals like to make them.
“These transactions might be signs that someone has learned your account information and is using it to commit a crime,” said Michael Benardo, manager of the (Federal Deposit Insurance Corporation) FDIC’s Cyber Fraud and Financial Crimes Section. “That’s why it’s important to be on the lookout for fraudulent transactions, no matter how small.”
He added, “When thieves fraudulently obtain someone else’s credit or debit card information and create counterfeit card, they might test it out with a small transaction—like buying a pack of gum or a soda—to make sure the counterfeit card works before using it to make a big purchase. If this test goes unnoticed, by the true account holder, thieves will use the card to buy something expensive that they want or that they can easily sell for cash.”
New Protections Would Limit Collector Contact and Help Ensure the Correct Debt is collected
The Consumer Financial Protection Bureau (CFPB) is considering to overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt. Under the proposals being considered, debt collectors would be required to have more and better information about the debt before they collect. As they are collecting, companies would be required to limit communications, clearly disclose debt details, and make it easier to dispute the debt. When responding to disputes, collectors would be prohibited from continuing to pursue debt without sufficient evidence. These requirements and restrictions would follow the debt if it were sold or transferred.
For more information about the proposals under consideration, click here.
Ask students what federal laws already prohibit debt collectors from harassing, oppressing, or abusing consumers.
Ask students if they, their friends or relatives, have ever been harassed by creditors. If so, what were their experiences?
Debt collection market generates more complaints to the Consumer Financial Protection Bureau than any other financial product or service. Why?
What might be some common complaints against debt collectors seeking to collect debt from consumers?
Dave Ramsey has taught and encouraged millions to get out of debt and to achieve an improved financial situation through his “seven baby steps,” which are: (1) establish a $1,000 emergency fund; (2) pay off debt; (3) save three to six months of expenses; (4) invest 15 percent of income in pre-tax retirement funds; (5) plan for the funding of the college education of children; (6) pay off mortgage as soon as possible; (7) build wealth and give.
An alternative perspective to this approach might be:
Create a larger initial emergency fund.
Instead of paying off the smallest debts first, pay off the ones with the highest interest.
A minimum of six months for expenses is needed, with twelve months more realistic.
Take advantage of any 401k matching offered by employers.
College may not be the right educational choice for everyone. Also, those who go to college should be responsible for a portion of education costs.
Home ownership may not be appropriate for everyone. When buying a home, paying off a mortgage may be a higher priority than saving for college to reduce the amount of interest paid.
Making money, saving money, and donating to charity should be the main focus.
For additional information on personal financial planning actions, click here.
Have students survey others regarding their use of these personal financial planning suggestions.
Have students obtain additional financial planning suggestions using online research.
What do you believe are the most important actions that should be taken regarding wise personal financial planning?
How would you communicate these financial planning actions to others?
“Get out of debt the same way you learned to walk–one step at a time.”
This article describes Dave Ramsey’s seven steps that anyone can take to get out of debt and begin to manage their personal finances. These seven basic principles have been taught by Mr. Ramsey via radio, books, Financial Peace University, live events, and online. Listed below are the seven steps discussed in this article. Note: You can get more information about each step by clicking on the “Learn More” tab.
Begin by creating a $1,000 emergency fund.
Pay off all debt using the debt snowball .
Save 3 to 6 months of expenses in a savings account.
Invest 15 percent of household income into Roth IRAs and pre-tax retirement accounts.
My Wife and I Never Discussed Money Before Getting Married–and Ended Up with $52,000 of Debt
Prior to tallying up our debt, we’d talked about traveling internationally, starting a family, and, some day retiring comfortably. There was so much we wanted out of life, but . . .”
This is an excellent article that describes what can happen when a soon-to-be-married couple doesn’t talk about finances. Fortunately, the two people in this article–Deacon and Kim Hayes–realized they had a problem and then took steps to get their finances back on track.
Specific steps this couple took can make a big difference over time. Among the suggestions included in this article are:
Writing down all your assets, debts, income, and expenses.
Prepare a budget and review each item for opportunities to save money.
Replacing a newer, expensive car with an older car.
Selling unwanted or unneeded items online.
Using any extra money to repay debt.
Establishing an emergency fund.
Saving and investing a specific amount each month.
Consider This: Deacon Hayes–the author of this article–became a financial planner and now shares his story with his clients.