Whether it’s losing a job, facing unexpected medical bills, or a family member who needs help, handling a financial crisis can be downright scary. While you may experience a very rough ride for a while, there are some things you can do to make sure you’ll recover quickly:
Take the time to put on paper where you are. List your debts and the payments due. Write down your monthly expenses (looking through credit card statements and your chequebook register will help). Also create a list of assets that may be helpful in an emergency; savings accounts, retirement (superannuation) savings, securities or even antiques or collectibles that could be sold.
Talk With Your Creditors
If you have credit cards, student loans, or other unsecured debts, contact your lenders immediately if you think you will have trouble meeting the monthly payments for a while. Many lenders will work out a reduced payment schedule so you can get back on your feet. If you prefer, a non-profit credit counselling agency may be able to negotiate with your creditors for you.
Create a Paper Trail
Keep a notebook near the phone where you can record notes from conversations with lenders or other service providers, to avoid misunderstandings later. Keep copies of statements and correspondence.
You may not be able to handle all your financial matters alone, so don’t be afraid to ask for some help. If you’ll be spending day and night at the hospital with a loved one, for example, ask a trusted friend, a relative, or a financial advisor to help you make sure your bills are paid on time, or to sort through medical bills and insurance correspondence.
Don’t Jump to Conclusions
Taking money from your retirement (superannuation) account or tapping the cash value of your life insurance policy to pay bills or living expenses may have serious implications you haven’t considered, so try to get advice from an expert before you take any major financial actions.
Stick to the Basics
If your income is less than usual, or your expenses are more than usual, keep a close watch on your spending. Even though it may seem stressful to cut back, it will be even more stressful to face a mounting pile of bills you can’t pay when the crisis is over.
Use Credit Cards Carefully
Credit cards can be invaluable in a crisis, as they allow you to charge items and pay them off over time. But they can also be dangerous if you aren’t careful and charge more than you can afford. If you do use credit cards, choose one with the lowest interest rates and pay them back as soon as you can to cut your costs.
What to Do if an Account is Sent to Collections
If you do not pay a bill on time, the lender has the option of writing off your account as a bad debt and sending it to a collection agency. Creditors aren’t required to wait a certain period of time before turning an account over to collections, but most do so when an account is three to four months past due and they believe they can’t collect it. (It’s a common myth, by the way, that as long as you send the creditor something – even $1 – it can’t turn your account over to collections.)
Once your account is sent to an outside collection agency, you’ll have to deal with the agency – not the original creditor. While collection agencies may be persistent in their efforts, they are required to follow federal, and sometimes state laws that prevent harassment and deceptive practices. A collection agency, for example, cannot:
- Call you repeatedly for the purpose of harassing you
- Call before 8 a.m. or after 9 p.m.
- Call you at work if your employer prohibits it
- Use abusive or obscene language
- Publish your name in a list of “deadbeats”
Here are some tips for dealing with a collection agency:
Pay as soon as possible
If you are in dire financial straits, explain your situation and tell the collector that you simply cannot pay the bill now. If, however, you can pay some or all of the bill, you should. An unpaid collection account listed on your credit report is considered very serious. The sooner you can pay it off, the better, as far as your credit record is concerned. (And it will probably reduce your level of stress, too!)
Some creditors will negotiate – offering to take less than the total amount due in exchange for quick payment. For example, one collector might offer to settle a $2000 debt for $1500 if you can pay within a week. Understand that the IRS considers “forgiveness of a debt” a taxable activity and treats the amount forgiven as income for tax purposes (for US residents), other debt collection agencies might make a payment arrangement with you for $20-$50 a week until the debt is fully paid down.
Keep good records
Keep copies of all correspondence, and make copies of any letters you send to the collection agency. Also keep a written record of whom you spoke with, when and what was agreed. If there are discrepancies later, these records may prove to be very helpful.
Don’t make promises you can’t keep – and keep the ones you make.
Don’t allow yourself to feel pressured into making a payment you can’t afford. Neither you nor the collection agency wins if you agree to payments but don’t keep up with them. If you need time to think about an offer from an agency, ask for it. Once you do agree to a payment schedule, stick to it.
Since collection accounts are considered very negative and will hurt your credit for years to come, your best strategy is to try to avoid them altogether. If you find yourself unable to pay a bill, call the creditor immediately to see if you can negotiate a reduced payment schedule. Another option is to work with a non-profit counselling agency that will negotiate with your creditors for you. Take the initiative to ask for help, even if you don’t feel like dealing with the problem. If you don’t keep the lines of communication open with your creditors, you may hear from a collection agency instead!
What to Do When You’re Turned Down for a Loan or Credit Card
It’s never fun to be turned down for something you want – and a loan or credit card is no different. But before you take it personally, or think you won’t be able to get credit anywhere, read the below tips on how to handle rejection.
Lenders are required under many circumstances to tell you in writing when you’ve been turned down for credit. Sometimes it can be hard to understand exactly why you were turned down. Two important pieces of information are included in the letter you receive when you are denied credit:
- The specific reasons why you were denied credit (or information on how to obtain those reasons); and
- If a credit report was used in making that decision, the name and address of the credit reporting agency that supplied it.
If you are turned down, try these three strategies:
Step One: Understand Why You Weren’t Approved.
Lenders will usually tell you in the rejection letter the reasons you were turned down, but once in a while they will include instructions for contacting the lender for that information instead. If that’s the case, make sure you find out what those reasons were.
In any case, if you don’t understand the reasons given for turning down your application, ask for more information. Sometimes it can be hard to pinpoint exactly why your application was not approved, because these decisions involve a lot of different factors. Don’t be shy about asking, though, since the information you receive may help you improve your credit so you can qualify in the future.
However understand that some financial institutions will only tell you that your loans or credit card has been declined as it is outside of their lending guidelines and they may not provide any further information.
Reasons for a declined application can include:
- Level of debt
- Overall asset position
- unsecured portion of your credit application
- Credit history
- instability in employment or residential history
Step Two: Get Your Credit Report
If the lender used a credit report in making the decision about whether to grant you credit, you are entitled to a free copy of your report. You must request it within 60 days, so don’t wait to order it. Read your report carefully to make sure it is accurate and complete.
If you do find mistakes, dispute them directly with the credit bureau, which is required to investigate and make corrections, if necessary. If you believe that mistakes on your report led to the rejection of your application, you can ask the credit bureau to send a corrected copy to the lender. Follow up with the lender to find out if your application can be re-evaluated.
Step Three: Try Again
All lenders have different approval standards. Just because you didn’t get a credit card or loan from one financial institution doesn’t mean you can’t get one somewhere else. Try again with another financial institution. Just don’t apply for more than four or five loans or cards in a six-month period; otherwise, the fact that several companies have reviewed your credit report recently can count against you.
*Editors notes – Keeping in mind that the more credit enquiries you have on your credit file, the harder it can be to get credit – if you are declined 2-3 times, I would suggest that you stop applying for credit and investigate why you have been declined and what you can do to make the situation better*
Credit card issuers may have different programs with different terms, and qualification standards. Other lenders may approve a loan if you can come up with a larger down payment or accept another interest rate. It never hurts to ask if there is a program that’s right for you.