UnderstandingDebtSem..

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Friday, April 7, 2023Friday, April 7, 2023 Copyright Copyright ©© DebtGuard Management System DebtGuard Management System®® 22

American Consumer Credit CounselingAmerican Consumer Credit Counseling is a is a leading provider of consumer financial education leading provider of consumer financial education and debt management services. It is our mission and debt management services. It is our mission to provide individuals with the necessary tools to to provide individuals with the necessary tools to make informed financial decisions.make informed financial decisions.

About UsAbout Us

This This Understanding DebtUnderstanding Debt study course has been study course has been developed specifically to educate individuals on developed specifically to educate individuals on how to:how to:

Achieve Financial WellnessAchieve Financial Wellness

Maintain IndependenceMaintain Independence

Change Financial BehaviorChange Financial Behavior


Seminar FormatSeminar Format

Today we are going to cover and review three Today we are going to cover and review three chapters within this chapters within this Understanding DebtUnderstanding Debt study study course:course:

Study Chapter 4:Study Chapter 4:

Focus on DebtFocus on Debt


Understanding DebtUnderstanding Debt


Getting Out of DebtGetting Out of Debt


Dealing with Unpaid DebtsDealing with Unpaid Debts


Seminar FormatSeminar Format

Your time is valuable…so is ours. Regular Your time is valuable…so is ours. Regular breaks are scheduled. Please make every effort breaks are scheduled. Please make every effort to return from breaks on time.to return from breaks on time.

House Rules (I): BreaksHouse Rules (I): Breaks

Your questions are welcomed and encouraged. Your questions are welcomed and encouraged. DO NOT wait until breaks to ask questions, as DO NOT wait until breaks to ask questions, as we intend this seminar to be as informative as we intend this seminar to be as informative as possible…besides, we need breaks too!possible…besides, we need breaks too!

House Rules (II): QuestionsHouse Rules (II): Questions


Understanding DebtUnderstanding DebtCourse 2Course 2


Almost every consumer in America today owes Almost every consumer in America today owes some money to someone else on an “extended some money to someone else on an “extended credit program.”credit program.”

Extended credit makes it possible for consumers to Extended credit makes it possible for consumers to start businesses as well as purchase items from start businesses as well as purchase items from people, merchants or companies with no money out of people, merchants or companies with no money out of pocket. pocket.

There are two basic types of consumer debt, There are two basic types of consumer debt, securedsecured debt and debt and unsecuredunsecured debt. debt.

Focus on DebtFocus on DebtChapter 4Chapter 4

Q. What are the types of consumer debts?Q. What are the types of consumer debts?


Q. Q. What is secured debt?What is secured debt?

Secured consumer debt is debt that Secured consumer debt is debt that isis tied to a tied to a specific piece of real property. specific piece of real property.

The most common secured debts are “homes The most common secured debts are “homes and automobiles.” and automobiles.”

A home or car is considered the property that you will A home or car is considered the property that you will put up for collateral to the lender for the amount of put up for collateral to the lender for the amount of money you plan to borrow which guarantees repayment money you plan to borrow which guarantees repayment of the debt. of the debt.



Q. Q. How does secured debt work?How does secured debt work?

Let’s say that you are applying for a line-of-credit Let’s say that you are applying for a line-of-credit at your local bank for $20,000. As part of your at your local bank for $20,000. As part of your line-of-credit approval you will have to put up line-of-credit approval you will have to put up your house as collateral to “secure” the your house as collateral to “secure” the repayment of the $20,000. Your line-of-credit is repayment of the $20,000. Your line-of-credit is now secured by your property (house). now secured by your property (house).

If for any reason you cannot pay the bank your If for any reason you cannot pay the bank your agreed upon monthly payment, the bank can agreed upon monthly payment, the bank can take the collateral property (house) and sell it to take the collateral property (house) and sell it to pay the balance you owe on the line-of-credit.pay the balance you owe on the line-of-credit.



Q. Q. What are the advantages and What are the advantages and disadvantages of secured debt?disadvantages of secured debt?

If you have no credit or a bad credit history then securing a If you have no credit or a bad credit history then securing a loan with your property is sometimes the only way possible. loan with your property is sometimes the only way possible.

Secured debts usually have structured payment Secured debts usually have structured payment amounts and terms. In addition, you can usually amounts and terms. In addition, you can usually obtain lower rates if your credit is good.obtain lower rates if your credit is good.

The downside to a secured loan is that you can The downside to a secured loan is that you can lose your propertylose your property if you; 1) cannot repay the if you; 1) cannot repay the loanloan or 2) or 2) file bankruptcy against your unpaid file bankruptcy against your unpaid secured loan.secured loan.



Q. Q. What is unsecured debt?What is unsecured debt?

Unsecured consumer debt is debt that Unsecured consumer debt is debt that is notis not tied to a specific piece of property. tied to a specific piece of property.

The most common unsecured debts are “credit The most common unsecured debts are “credit cards and medical bills.” cards and medical bills.”

When you use a credit card to purchase items When you use a credit card to purchase items or see a doctor for medical attention there is no or see a doctor for medical attention there is no property to take from you if you don’t pay the property to take from you if you don’t pay the creditor or hospital. creditor or hospital.



Q. Q. How does unsecured debt work?How does unsecured debt work?

Let’s say you have been approved for a credit Let’s say you have been approved for a credit card with a spending limit of $5,000. The minute card with a spending limit of $5,000. The minute you purchased any item with that credit card the you purchased any item with that credit card the card created an unsecured debt. card created an unsecured debt.

If you cannot make payments to the credit card company, they can: If you cannot make payments to the credit card company, they can:

(1) send you to collections, where a collection agency tries to collect from you, (1) send you to collections, where a collection agency tries to collect from you, or or

(2) sue you in court and convince the judge to grant (2) sue you in court and convince the judge to grant them a judgment against you for the amount you them a judgment against you for the amount you owe them. owe them.



Q. Q. What are the advantages and What are the advantages and disadvantages of unsecured debt?disadvantages of unsecured debt?

Creating unsecured debt can only be obtained Creating unsecured debt can only be obtained by having an average to good credit rating by having an average to good credit rating (FICO score) and payment history. (FICO score) and payment history.

Unsecured debt usually comes with flexible Unsecured debt usually comes with flexible payment amounts and terms and credit limits.payment amounts and terms and credit limits.

Overspending on credit cards is the leading Overspending on credit cards is the leading cause that creates unsecured debt. cause that creates unsecured debt.



(Hand out Chapter 4 Test)(Hand out Chapter 4 Test)





Q. Q. What is Debt Load?What is Debt Load?

Debt load is a creditor term that is used to profile Debt load is a creditor term that is used to profile the total amount of debt that a consumer is the total amount of debt that a consumer is carrying. carrying.

Creditors and other lenders use various methods Creditors and other lenders use various methods to calculate your debt load.to calculate your debt load.

The most common method is called the Debt-to-The most common method is called the Debt-to-Income Ratio.Income Ratio.

Understanding DebtUnderstanding DebtChapter 5Chapter 5


Q. Q. What is a Debt-to-Income Ratio?What is a Debt-to-Income Ratio?

A Debt-to-Income Ratio is the simplest method A Debt-to-Income Ratio is the simplest method that a creditor or lender may use to compare the that a creditor or lender may use to compare the amount of your take-home income with the amount of your take-home income with the amount of your overall debt, excluding your amount of your overall debt, excluding your mortgage or rent payment. mortgage or rent payment.

This method will tell the creditor or lender what This method will tell the creditor or lender what percentage of your take-home income is being percentage of your take-home income is being used to pay for non-mortgage related debt.used to pay for non-mortgage related debt.



Q. Q. How do I calculate my Debt-to-How do I calculate my Debt-to-Income Income Ratio? Ratio?

There are There are three partsthree parts to calculate your Debt-to- to calculate your Debt-to-Income Ratio, which include:Income Ratio, which include:

Part 1 – Take-Home IncomePart 1 – Take-Home Income

Part 2 – Monthly Debt PaymentsPart 2 – Monthly Debt Payments

Part 3 – Debt-to-Income Ratio formulaPart 3 – Debt-to-Income Ratio formula



Let’s review the three parts:Let’s review the three parts:

Take-home Income Take-home Income – Includes– Includes your job wages, sales your job wages, sales commissions, company bonuses, alimony, child support, tips, commissions, company bonuses, alimony, child support, tips, interest on money, company dividends, social security, interest on money, company dividends, social security, pensions and other government assistancepensions and other government assistance

Let’s review the“Let’s review the“Debt-to-Income Ratio formulaDebt-to-Income Ratio formula” ” and how to calculate it.and how to calculate it.

Monthly Debt Payments Monthly Debt Payments – – This is the amount you owe This is the amount you owe to your creditors each month, excluding mortgage, rent, utilities, to your creditors each month, excluding mortgage, rent, utilities, and taxes. Such as credit cards, student loans, auto loans, etc.and taxes. Such as credit cards, student loans, auto loans, etc.



““Debt-to-Income Ratio formulaDebt-to-Income Ratio formula” calculation chart.” calculation chart.

Step 1Step 1 - - Monthly (take-home income) is Monthly (take-home income) is $2,000$2,000

Step 2Step 2 - Monthly (debt payments) are - Monthly (debt payments) are $700$700 (auto loan, credit cards, other (auto loan, credit cards, other loans, etc.) loans, etc.)

Step 3Step 3 - - Take $700 (debt payments) divide by $2,000 (take-home income) = 35%Take $700 (debt payments) divide by $2,000 (take-home income) = 35%

35%35% is your Debt-to-Income Ratio percentage is your Debt-to-Income Ratio percentage

$700 $2,000 35



Q. Q. How do creditors view my Debt-to- How do creditors view my Debt-to-

Income Ratio? Income Ratio?

As a general rule of thumb, creditors and lenders As a general rule of thumb, creditors and lenders may follow these Debt-to-Income Ratio may follow these Debt-to-Income Ratio percentages when granting credit approval.percentages when granting credit approval.

Less than 10%Less than 10% - - You are in great financial shapeYou are in great financial shape

10% to 19%10% to 19% - A good credit risk - A good credit risk

20% to 34%20% to 34% - - Credit is questionable at these ratiosCredit is questionable at these ratios

35% and higher35% and higher – Considered a high credit risk – Considered a high credit risk

Let’s review:Let’s review:



Q. Q. How can I change my Debt-to-Income How can I change my Debt-to-Income Ratio? Ratio?

It is possible to change your Debt-to-Income It is possible to change your Debt-to-Income Ratio for the better. Changing your Debt-to-Ratio for the better. Changing your Debt-to-Income Ratio can be accomplished by:Income Ratio can be accomplished by:

IncreasingIncreasing your monthly take-home pay your monthly take-home pay

DecreasingDecreasing your monthly debt payments your monthly debt payments

OROR

Let’s review Let’s review threethree different scenarios:different scenarios:



Scenario 1:Scenario 1:

Take-Home Income Monthly Debt Payments

$2,000 Auto loan $375

Credit cards $150

Student loan $50

Personal loan $125

Total Payment $700

$700 $2,000 35




Take-Home Income Monthly Debt Payments

$3,000 Auto Loan $375

Credit cards $150

Student loan $50

Personal loan $125

Total Payment $700

$700 $3,000 23

Note: We increased income by $1,000




Take-Home Income

$2,000

$375 $2,000 19

Note: We lowered the monthly

payments by $325

Monthly Debt Payments

Auto Loan $275

Credit cards $50

Student loan $50

Personal loan $0

Total Payment $375

$375

$150

$50

$125

$700



Summary of Debt-to-Income Ratio Scenarios: Summary of Debt-to-Income Ratio Scenarios:

Scenario Debt-to-Income RatioMonthly

Debt PaymentTake-Home

Income

1 $700 $2,000 35% (High Credit Risk)

2 $700 $3,000 23% (Questionable)

3 $375 $2,000 19% (Good Credit Risk)

Note:Note: You can improve your credit by: You can improve your credit by:

1) Increasing take-home income or 1) Increasing take-home income or

2) Decreasing monthly debt payments2) Decreasing monthly debt payments



Q. Q. Why should I monitor my Debt-to-Why should I monitor my Debt-to-Income Ratio? Income Ratio?

Keeping track of your monthly debt payments is very important Keeping track of your monthly debt payments is very important to your Debt-to-Income Ratio and creditworthiness. to your Debt-to-Income Ratio and creditworthiness.

By creating a livable spending plan you will be able to allocate the By creating a livable spending plan you will be able to allocate the necessary monthly payments to all debts, therefore helping you necessary monthly payments to all debts, therefore helping you to:to:

Make good financial decisions Make good financial decisions

Keep Debt-to-Income Ratios below 20%Keep Debt-to-Income Ratios below 20%

Avoid financial problemsAvoid financial problems



Q. Q. What is the 20/10 Rule?What is the 20/10 Rule?

The 20/10 Rule is another method that lenders The 20/10 Rule is another method that lenders often use to grant consumer credit. often use to grant consumer credit.

The 20/10 Rule has two parts:The 20/10 Rule has two parts:

Let’s Review:Let’s Review:



The “20” Rule Refers To:The “20” Rule Refers To:

Your total annual household debt (excluding your Your total annual household debt (excluding your mortgage) mortgage) should not exceed 20%should not exceed 20% of your net of your net annual take-home income. Net take-home income annual take-home income. Net take-home income is what you actually take-home after taxes and is what you actually take-home after taxes and deductions. deductions.




Your total monthly debt payments (excluding Your total monthly debt payments (excluding your mortgage payments) your mortgage payments) should not exceed should not exceed 10%10% of your net monthly take-home income. of your net monthly take-home income.

Let’s Review How Let’s Review How

The 20/10 Rule Works:The 20/10 Rule Works:




Your total net take-home income is $48,000 a yearYour total net take-home income is $48,000 a year

The formula:The formula: Take $48,000 (times) 20% = $9,600 Take $48,000 (times) 20% = $9,600

Your total consumer debt under the “20” Rule Your total consumer debt under the “20” Rule shouldn’t shouldn’t exceed $9,600 exceed $9,600

$48,000 20% $9,600




The first formula:The first formula: Take $48,000 (divide by) 12 = $4,000 Take $48,000 (divide by) 12 = $4,000

The second formula:The second formula: Take $4,000 (times) 10% = $400 Take $4,000 (times) 10% = $400

$4,000 10% $400

Your total monthly payment under the “10” Rule Your total monthly payment under the “10” Rule shouldn’t exceed $400 per monthshouldn’t exceed $400 per month


Your total net take-home income is $48,000 a yearYour total net take-home income is $48,000 a year


Q. Q. What is the 28/36 Rule?What is the 28/36 Rule?

The 28/36 Rule is another method that The 28/36 Rule is another method that mortgage lenders may use to grant credit. mortgage lenders may use to grant credit.

The 28/36 Rule has two parts and works like this:The 28/36 Rule has two parts and works like this:





Your total mortgage payment (principle & Your total mortgage payment (principle & interest), including taxes, insurance, mortgage interest), including taxes, insurance, mortgage insurance and homeowner’s dues insurance and homeowner’s dues should not should not exceed 28%exceed 28% of your gross monthly income. of your gross monthly income.

Gross monthly income is what you actually make Gross monthly income is what you actually make beforebefore taxes and deductions are taken out.taxes and deductions are taken out.




Your total mortgage payment (principle & Your total mortgage payment (principle & interest), including taxes, insurance, mortgage interest), including taxes, insurance, mortgage insurance, homeowner’s dues insurance, homeowner’s dues plus other debts plus other debts (e.g., auto loans, student loans, credit cards, (e.g., auto loans, student loans, credit cards, etc)etc) should not exceed 36%should not exceed 36% of your gross of your gross monthly income. monthly income.

Let’s Review How Let’s Review How

The 28/36 Rule Works:The 28/36 Rule Works:




Your total gross income is $72,000 a yearYour total gross income is $72,000 a year


Your total monthly payments under the “28” Rule Your total monthly payments under the “28” Rule shouldn’t exceed $1,680 of your $6,000 gross monthly shouldn’t exceed $1,680 of your $6,000 gross monthly income.income.

The second formula:The second formula: Take $6,000 (times) 28% = $1,680 Take $6,000 (times) 28% = $1,680

$6,000 28% $1,680




Your total gross income is $72,000 a yearYour total gross income is $72,000 a year


Your total monthly payments under the “36” Rule Your total monthly payments under the “36” Rule shouldn’t exceed $2,160 of your $6,000 gross monthly shouldn’t exceed $2,160 of your $6,000 gross monthly income.income.

The second formula:The second formula: Take $6,000 (times) 36% = $2,160 Take $6,000 (times) 36% = $2,160

$6,000 36% $2,160








Q. Q. How can I tell if my credit card debt is How can I tell if my credit card debt is out of control? out of control?

There are There are five warning signsfive warning signs, which indicate that , which indicate that your credit card debt may be getting out of control:your credit card debt may be getting out of control:

Paying bills late Paying bills late

Transferring balances from one account to another Transferring balances from one account to another

Depending on overtime at work to cover minimum monthly bills Depending on overtime at work to cover minimum monthly bills

Hoping that checks you’ve written don’t clear the bank before Hoping that checks you’ve written don’t clear the bank before payday payday

Borrowing from friends and relatives to cover Borrowing from friends and relatives to cover basic living expenses basic living expenses

Getting Out of DebtGetting Out of DebtChapter 6Chapter 6


Q. Q. What do I do if I fall behind on my What do I do if I fall behind on my credit card payments? credit card payments?

You should contact your creditor(s) and explain You should contact your creditor(s) and explain your financial situation honestly before your your financial situation honestly before your account becomes seriously past-due and/or gets account becomes seriously past-due and/or gets referred to a collection agency. referred to a collection agency.

Note:Note: If a creditor is unwilling to work with you, If a creditor is unwilling to work with you, we recommend that you we recommend that you contact our company contact our company immediately for help.immediately for help. In most cases, we can In most cases, we can work with your creditors and structure a work with your creditors and structure a repayment plan to bring your accounts current.repayment plan to bring your accounts current.



Q. Q. What do I do if a creditor is harassing What do I do if a creditor is harassing me?me?

We suggest that you:We suggest that you:

Tell the creditor or collection agency to stop Tell the creditor or collection agency to stop calling you at your home and/or work. calling you at your home and/or work.

If they continue to call, If they continue to call, you can contact our you can contact our company for help. company for help. In most cases, In most cases, we can we can workout a repayment plan that will stop workout a repayment plan that will stop the harassing calls. the harassing calls.



Q. Q. Can a creditor take me to court if I fail Can a creditor take me to court if I fail to make payments?to make payments?

YesYes. If your debt is large enough a creditor may . If your debt is large enough a creditor may refer your account to an attorney and take you to refer your account to an attorney and take you to court. court.

Creditors realize that court can be a scary Creditors realize that court can be a scary place so they file suit betting that you won’t place so they file suit betting that you won’t show up at the hearing date. Therefore, they show up at the hearing date. Therefore, they win their case by default and may have the win their case by default and may have the ability to ability to garnish your wages (up to 25% or garnish your wages (up to 25% or more)more) or take your property. or take your property.



Q. What does it mean when an account Q. What does it mean when an account is charged-off?is charged-off?

Once a creditor has tried every angle to collect Once a creditor has tried every angle to collect payment on your past-due account, that creditor payment on your past-due account, that creditor will stop collection, and rather than take you to will stop collection, and rather than take you to court, they write off your uncollected debt as bad court, they write off your uncollected debt as bad debt. This is known as a charge-off. debt. This is known as a charge-off.

Even though your account is charged-off, you Even though your account is charged-off, you still owe the money and a charge-off will be still owe the money and a charge-off will be noted on your credit report. noted on your credit report.



Q. How can I settle a charged-off Q. How can I settle a charged-off account?account?

Settling a charged-off account can take some Settling a charged-off account can take some work and patience on your part. Here are some work and patience on your part. Here are some suggestions:suggestions:

Come up with a payment amount that you can payCome up with a payment amount that you can pay

Contact the creditor. Make them a settlement offerContact the creditor. Make them a settlement offer

Get the settlement offer in writing from the creditor Get the settlement offer in writing from the creditor before sending paymentbefore sending payment

Once paid, send copies of that written settlement Once paid, send copies of that written settlement statement from the creditor to the three credit statement from the creditor to the three credit bureausbureaus



Q. What are my options in getting out of Q. What are my options in getting out of debt?debt?

Option 1Option 1 - Getting out of debt:- Getting out of debt:

Stop using your credit cardsStop using your credit cardsTake the Take the minimum payment dueminimum payment due on your statement on your statement ($125($125))

Add the $125 to the Add the $125 to the creditor’s finance chargecreditor’s finance charge ($72($72))

$197 is your New Fixed Monthly Payment$197 is your New Fixed Monthly Payment

$125$125 $72$72 $197$197



Q. What are my options in getting out of Q. What are my options in getting out of debt?debt? (cont.)

Option 2Option 2 - Getting out of debt:- Getting out of debt:

Contact our Contact our credit counseling agencycredit counseling agency for help for help

Our agency has certified credit counselors trained to Our agency has certified credit counselors trained to help consumers create livable household budgets, help consumers create livable household budgets, spending plans and repayment plans. Our main focus spending plans and repayment plans. Our main focus is to help is to help get your finances under controlget your finances under control so you so you can create a plan to eliminate your debtcan create a plan to eliminate your debt

In addition, In addition, our agencyour agency can: can:



Option 2Option 2 – – Getting out of debtGetting out of debt

Consolidate all Consolidate all your unsecured debtsyour unsecured debts (credit (credit cards) into a debt management program which, cards) into a debt management program which, could help you:could help you:

Lower your monthly payments 30% to 50%Lower your monthly payments 30% to 50%

Re-age past-due accounts to current statusRe-age past-due accounts to current status

Stop collection calls and demand lettersStop collection calls and demand letters

Lower or eliminate interestLower or eliminate interest

Develop a repayment plan to get you out of debt Develop a repayment plan to get you out of debt in 48 to 60 months, instead of 20 yearsin 48 to 60 months, instead of 20 years








Q. What are the consequences of unpaid Q. What are the consequences of unpaid debts?debts?

When financial problems arise, consumers need When financial problems arise, consumers need to understand the consequences of the different to understand the consequences of the different types of debts and how they can be affected if types of debts and how they can be affected if not paid. not paid.

Dealing with Unpaid DebtsDealing with Unpaid DebtsChapter 7Chapter 7

Let’s reviewLet’s review what can happen if either “secured” what can happen if either “secured” or “unsecured” debts are not paid. or “unsecured” debts are not paid.


SECURED DEBTS:SECURED DEBTS:

Most secured debts are backed by collateral. Most secured debts are backed by collateral. Collateral is property that can be seized in the Collateral is property that can be seized in the event debt goes unpaid. event debt goes unpaid.


Secured credit cardsSecured credit cards – – If you don’t pay on your secured If you don’t pay on your secured credit card the card issuer who has control of your collateral credit card the card issuer who has control of your collateral (savings deposit) can seize your savings deposit and suspend (savings deposit) can seize your savings deposit and suspend your privileges to charge on that card in the future.your privileges to charge on that card in the future.

Examples of Secured Debts:Examples of Secured Debts:

Home mortgageHome mortgage – – If you should fall behind on your If you should fall behind on your mortgage payments, the mortgage lender can seize your home mortgage payments, the mortgage lender can seize your home (foreclosure), leaving you with nothing. All current, and future (foreclosure), leaving you with nothing. All current, and future equity accumulated in the property would now belong to the equity accumulated in the property would now belong to the mortgage lender.mortgage lender.


SECURED DEBTS:SECURED DEBTS:


Automobile loanAutomobile loan – – If you should fall behind on your car If you should fall behind on your car payments, the bank or financial institution has the right to payments, the bank or financial institution has the right to legally repossess your car without your permission. If the car is legally repossess your car without your permission. If the car is repossessed, the car is now the property of the bank or repossessed, the car is now the property of the bank or financial institution that holds it’s title.financial institution that holds it’s title.

Examples of Secured Debts: Examples of Secured Debts: ContinuedContinued


UNSECURED DEBTS:UNSECURED DEBTS:

When dealing with unsecured debts, like credit When dealing with unsecured debts, like credit cards, department store cards and medical bills, cards, department store cards and medical bills, here are here are threethree basic things that can happen if basic things that can happen if your debt goes unpaid. your debt goes unpaid.


Cancellation of your credit charging Cancellation of your credit charging privilegesprivileges

Damage to your credit rating (report)Damage to your credit rating (report)

Being sued in a court of law (by the Being sued in a court of law (by the creditor) for the unpaid debtcreditor) for the unpaid debt


Q. Who can legally contact me to collect Q. Who can legally contact me to collect on an unpaid debt?on an unpaid debt?

Their are Their are threethree types of people that are types of people that are authorized to call you and collect on your unpaid authorized to call you and collect on your unpaid debts:debts:


Credit GrantorsCredit Grantors - - Credit grantors are companies that Credit grantors are companies that grant you credit (like a credit card company). Most credit grant you credit (like a credit card company). Most credit grantors have a collection department within their company grantors have a collection department within their company that handles all collections on delinquent debts. that handles all collections on delinquent debts.

Collection AgenciesCollection Agencies – – These agencies are hired by the These agencies are hired by the creditor to collect on the unpaid debt from the consumer. In creditor to collect on the unpaid debt from the consumer. In other cases, the creditor will sell your unpaid debt at a other cases, the creditor will sell your unpaid debt at a discounted rate to a collection agency. In either case, the discounted rate to a collection agency. In either case, the collection agency has the right and power to collect on the collection agency has the right and power to collect on the unpaid debt.unpaid debt.


Q. Who can legally contact me to collect Q. Who can legally contact me to collect on an unpaid debt?on an unpaid debt?

Continued:Continued:


AttorneysAttorneys - If your unpaid debt has gone to an - If your unpaid debt has gone to an attorney, your financial problems have only just attorney, your financial problems have only just begun. begun.

Collection agencies will usually try to collect on your Collection agencies will usually try to collect on your unpaid debt for 60 days using every legal tactic unpaid debt for 60 days using every legal tactic possible. possible.

If unsuccessful in collecting and the unpaid debt is If unsuccessful in collecting and the unpaid debt is substantial (like $7,500 plus), the unpaid debt could substantial (like $7,500 plus), the unpaid debt could go to an outside law firm (attorney) for final go to an outside law firm (attorney) for final collection and/or legal action against you in a court collection and/or legal action against you in a court of law.of law.


Q. Do I have rights as a consumer?Q. Do I have rights as a consumer?

In 1977 the government passed the In 1977 the government passed the Fair Debt Fair Debt Collection Practices ActCollection Practices Act (FDCPA) as a law (FDCPA) as a law that protects consumers and debtors from that protects consumers and debtors from harassment or unfair treatment by debt harassment or unfair treatment by debt collectors. collectors.


Many debt collectors don’t follow the rules and Many debt collectors don’t follow the rules and use underhanded scare tactics, which violate use underhanded scare tactics, which violate the rights of a consumer. the rights of a consumer.

In the In the back of your workbookback of your workbook you will find a you will find a copy of the FDCPA for your review.copy of the FDCPA for your review.


Q. What is the best way to settle an Q. What is the best way to settle an unpaid debt?unpaid debt?

You should You should never ignorenever ignore an unpaid debt from a an unpaid debt from a creditor you owe money to. creditor you owe money to.


If you are having financial problems in meeting If you are having financial problems in meeting your payment obligation to a “secured” or your payment obligation to a “secured” or “unsecured” creditor it is a good idea to “unsecured” creditor it is a good idea to notify notify that creditorthat creditor and work out an affordable and work out an affordable payment plan that fits into your budget.payment plan that fits into your budget.

Let’s Review The Different Debts:Let’s Review The Different Debts:


Solution for dealing with Solution for dealing with SecuredSecured Debts: Debts:


Keep in mind that creditors with secured debts Keep in mind that creditors with secured debts are in the business of collecting money. They are in the business of collecting money. They do not want to repossess property unless it is do not want to repossess property unless it is absolutely necessary. absolutely necessary.

Oftentimes, a secured creditor (mortgage or Oftentimes, a secured creditor (mortgage or auto lender) can place your past-due auto lender) can place your past-due payments at the end of your loan. Therefore, payments at the end of your loan. Therefore, bringing your account current. bringing your account current.


Solution for dealing with Solution for dealing with UnsecuredUnsecured Debts:Debts:


Settling unsecured debts before it becomes a Settling unsecured debts before it becomes a problem, such as wage garnishment or problem, such as wage garnishment or litigation is always your best solution. litigation is always your best solution.

In most cases, if your delinquent account goes In most cases, if your delinquent account goes unpaid for more than 90 days, the creditor will unpaid for more than 90 days, the creditor will usually send you a settlement offer by mail usually send you a settlement offer by mail lowering your unpaid balance by as much as lowering your unpaid balance by as much as 50%. 50%.

This type of settlement usually requires you to This type of settlement usually requires you to pay the lowered settlement amount in full. pay the lowered settlement amount in full.


Q. Should I consider bankruptcy as an Q. Should I consider bankruptcy as an option?option?

Bankruptcy should only be considered as a last Bankruptcy should only be considered as a last option. A bankruptcy can destroy your credit option. A bankruptcy can destroy your credit rating for as long as 10 years. rating for as long as 10 years.


Before filing bankruptcy you should seek the Before filing bankruptcy you should seek the help of a reputable credit counseling agency. If help of a reputable credit counseling agency. If an agency decides that bankruptcy is the only an agency decides that bankruptcy is the only available solution, there are two different types available solution, there are two different types of personal bankruptcy that an individual may of personal bankruptcy that an individual may utilize:utilize:



Chapter 7 Bankruptcy:Chapter 7 Bankruptcy:

This chapter is the full liquidation more commonly This chapter is the full liquidation more commonly known as “straight” Bankruptcy. This is the known as “straight” Bankruptcy. This is the most most common form of bankruptcycommon form of bankruptcy that an individual will that an individual will file. Chapter 7 is only for individuals, not businesses file. Chapter 7 is only for individuals, not businesses or partnerships. or partnerships.


In most cases, all your property is normally exempted In most cases, all your property is normally exempted and therefore kept out of your Chapter 7 bankruptcy. and therefore kept out of your Chapter 7 bankruptcy.

Most individuals file Chapter 7 to completely eliminate Most individuals file Chapter 7 to completely eliminate large credit card debt, personal loans and other large credit card debt, personal loans and other unsecured debts. unsecured debts.


Chapter 13 Bankruptcy:Chapter 13 Bankruptcy:

This chapter is best for people who have This chapter is best for people who have too much too much disposable incomedisposable income and also have the kind of and also have the kind of consumer debt (like student loans, taxes, etc.) that consumer debt (like student loans, taxes, etc.) that cannot be included in a Chapter 7 bankruptcy. cannot be included in a Chapter 7 bankruptcy.


People that are behind in their mortgage payments People that are behind in their mortgage payments and want to avoid foreclosure on their property may and want to avoid foreclosure on their property may also file a Chapter 13. also file a Chapter 13.

Chapter 13 allows a person to set-up a Chapter 13 allows a person to set-up a 3 to 5 year 3 to 5 year repayment planrepayment plan in order to make up past-due in order to make up past-due payments, therefore reinstating the creditors original payments, therefore reinstating the creditors original agreement.agreement.


Q. How can a credit counseling agency Q. How can a credit counseling agency help me with unpaid debts?help me with unpaid debts?

In most cases, a credit counseling agency can work In most cases, a credit counseling agency can work with the collection agency to structure a payment with the collection agency to structure a payment schedule for repaying the unpaid unsecured debt. schedule for repaying the unpaid unsecured debt.


Once an unpaid unsecured debt has been Once an unpaid unsecured debt has been consolidated into a consumer credit counseling consolidated into a consumer credit counseling program the consumer can expect these benefits:program the consumer can expect these benefits:



A Credit Counseling Agency Can:A Credit Counseling Agency Can:


Create a livable household budget and Create a livable household budget and spending plan which can help you and your spending plan which can help you and your family meet everyday living expenses as well family meet everyday living expenses as well as monthly bills.as monthly bills.

Help you eliminate your unsecured debt in 48 Help you eliminate your unsecured debt in 48 to 60 months, instead of 20 years!to 60 months, instead of 20 years!

Stop all collection activities, which includes Stop all collection activities, which includes harassing phone calls and payment demand harassing phone calls and payment demand letters. letters.

Provide ongoing budgeting help and money Provide ongoing budgeting help and money management education through certified credit management education through certified credit counselors. counselors.





Corporate Address:Corporate Address:

American Consumer Credit Counseling, Inc.American Consumer Credit Counseling, Inc.

130 Rumford Avenue, Suite 202130 Rumford Avenue, Suite 202

Newton, MA 02466Newton, MA 02466

How To Contact UsHow To Contact Us

Contact Information:Contact Information:

Toll Free: 1-800-769-3571Toll Free: 1-800-769-3571

Main: 1-781-647-3377Main: 1-781-647-3377

Fax: 1-781-893-7649Fax: 1-781-893-7649

Email: [email protected]: [email protected]

Web Address: Web Address: www.consumercredit.comwww.consumercredit.com

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