Chapter 6 Managing Your Debts 6.4 Managing Your Debts 6.4

What should Carl do? Carl Reynolds is in his early 20’s. A recent college graduate, he has a steady job and earns an annual income of $40,000. With the latest model sports car parked in the driveway of his new home, it would appear that Carl has the ideal life. However, Carl is deeply in debt. He is drowning in a sea of bills. Almost all of his income is tied up in debt payments. The bank has already begun foreclosure proceeding on his home, and several stores have court orders to repossess practically all of his new furniture and electronic gadgets. His current car payment is overdue, and he is behind in payments on all of his credit cards. If he does not come up with a plan of action, he will lose everything.

Warning Signs of Debt You make only the minimum payment on credit cards. You are having trouble making even the minimum monthly payment on your credit card bills. The total balance on your credit cards increases every month. You miss loan payments or often pay late. You use savings to pay for necessities such as food and utilities. You receive second or third payment due notices from creditors. You borrow money to pay off old debts. You have reached the credit limit on your credit cards. You have been denied credit because of a bad credit report.

Debt Collection Practices Debt Collectors: Fair Debt Collection Practices Act (FDCPA): The act does NOT erase the debts that consumers owe It controls the ways in which debt collection agencies do business and deal with consumers in debt

Financial Counseling Services If you are having trouble paying your bills and need help, you have several options: 1. Contact your creditors and try to work out an adjusted repayment plan (the creditor to work with you so you can pay less over a longer period of time) 2. Contact a non-profit financial counseling program, such as the Consumer Credit Counseling Service (which operates nationwide)

Consumer Credit Counseling Service The Consumer Credit Counseling Service (CCCS) assists families or individuals with serious debt problems by: 1. Helping them manage their money better. 2. Setting up a realistic budget. 3. Helping them prevent future debt by teaching them the importance of budget planning. 4. Educating them about the dangers of unwise credit buying. 5. Encouraging creditors to deny people who cannot afford to pay back their debt.

Declaring Bankruptcy Bankruptcy: **This should be used ONLY as a last resort** Severely damages a person’s credit score!

Effects of Bankruptcy Declaring bankruptcy has serious consequences: 1. Obtaining credit in the future may be difficult. 2. Once you file bankruptcy, you must wait for a period of time before filing again. 3. Bankruptcy reports are kept on file for ten years.