DIY Debt Payoff–Finale!

Mar 12, 2012 by

This is the fourth and last post in a short series providing a step-by-step guide to creating and executing a do-it-yourself debt repayment plan.

Step 1, 2, & 3 Review

Post #1 of the DIY Debt Payoff series described the steps for laying the foundation for a self-made debt repayment plan: Contact each of your unsecured debt creditors and ask for relief. In Post #2, we created a plan of attack: Figuring how much to send each creditor monthly to get the biggest bang for your pay-off buck. Remember that we’re working with an example in which you’ve got $400 you can dedicate each month to your debt payoff plan. Next, Post #3 discussed how to work into your plan debts with collection agencies and any accounts that are past due or over-limit.

What If the Collection Agency Says Your Payment’s Not Enough?

First, understand your rights and what debt collectors can and cannot legally do. Then, I suggest having one, short conversation with any collection agency representative who calls to tell you that what you’ve been paying monthly to the agency is not enough. Your message: “That’s all I can afford to pay, and I will keep sending it every month.” End of phone call, meaning hang up. Unless the agency literally returns your checks (which is extremely unlikely), you are making progress on the debt. If the agency threatens a lawsuit if you don’t pay more, ignore the threat and continue to send money to all of your creditors, including the agency threatening you, according to your debt pay off plan.

What If You Really Are Sued?!?

When you’re seriously behind on a debt, you’re in jeopardy of being sued. It could happen, and you may have to go to court. If you’re sued, you need to consult an attorney. If you can’t afford one, try Legal Services.

I am not an attorney, but here are my suggestions should you have to go to court:

Prepare by gathering your records: bank statements, cancelled debt payment checks, creditor statements, and your budget. If you’re following the do-it-yourself Money Counselor plan, sincerely tell the judge the truth, something along these lines:

I acknowledge this debt, and I am doing my best to repay it. I have other debts totaling $10,000—here are statements from each creditor—and I’m making payments on all of them. Here are my bank statements and cancelled checks. I’ve been making payments every month for 5 months, and I have a plan to repay all of these debts within 25 months. I’ve put together a very tight budget—here it is—and I’m working a second, part-time job (if you are—don’t lie), and I’ve determined the most I can spend monthly on debt payments is $400. I’ve been making that payment faithfully for 5 months, and I will continue until these debts are paid off. I have a plan, and I’m doing the best I can.

Yes, I could pay this creditor in court here today more, but I’d have to pay other creditors less or nothing at all, and I’d probably be right back here in court with another creditor sometime down the road. If that’s the future I face, I may have to file bankruptcy and get this over with.

If the court is unsympathetic to your plea and does nothing to discourage the creditor from pursuing garnishment or other intolerable collection activity, then you may indeed have to file bankruptcy after consulting with an attorney. But you’ll know you’ve tried your best to pay what you owe.

Not Enough Cash?

If you find you can’t spend enough on debt repayment to cover all of your creditors’ minimum required monthly payments, a Debt Management Plan (DMP) may make your payments affordable.

Meet with a certified consumer credit counselor at a nonprofit agency to learn how a DMP would compare to your do-it-yourself plan. The counseling agency can often, through a DMP, get better repayment terms for you with your creditors than you’ll be able to get on your own. In fact, a reputable nonprofit credit counseling agency usually can get creditors to reduce your interest rate and minimum monthly payment through a DMP program, even if they’ve already refused your direct request for concessions.

Discuss with your counselor the pros and cons of a do-it-yourself repayment plan and the agency’s DMP program, and compare the numbers. A good counselor will help you determine what’s best for you, not try to “sell” you a DMP regardless of your best interests.

Good luck with your Plan!

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