Differences in Creditors
Not all bills and creditors are created equal. They all share one common goal however: to collect the money you owe them. Different types of creditors do this in different ways and will affect your life in other aspects.
Utilities and Insurance
These two types of creditors, while very different, will affect you quickly and severely. While they will both look to collect the money you owe them through the normal collection channels, they can make your life difficult and even dangerous. Utility companies, such as your heating bill and water, will simply cut your service after an allotted time period. This means you will not have water, electricity, even heat in some cases. If you live in a colder part of the country, this could mean your life. Likewise, insurance, such as medical or life policies will be discontinued for non-payment.
Video: Negotiating with Creditors After a Medical Emergency
Obviously, you will lose the protection of your family’s well-being should you die without a life insurance policy. Even more critical could be the loss of your medical coverage. The loss of this coverage could have significant medical as well as long-term financial ramifications should you become ill or suffer an accident. These types of bills should always be paid first, since they will be taken away if you don’t pay. If you cannot make payment, contact the creditor and look for a solution, if at all possible, before you are cut off.
Your Home
Whether you rent or are making payments on a mortgage, these creditors too will affect you quickly and severely. Your rental company or landlord could evict you in some states as soon as 5 days after non-payment of your rent. Likewise your bank or mortgage holder, while not as quick as if you were renting, can repossess your home. Either way, you will be out and looking for a place to live. After your utilities and insurance are handled, your immediate primary concern should be keeping you in your home. If you cannot make payment, once again contact your lender or landlord and look for a solution.
Regular Debt and Credit
Most every other type of debt will attempt to collect on unpaid debts in similar manners. Your vehicle loan holder will most likely repossess your vehicle. Then sue you for any difference in the amount recovered from its sale and what you owe them. Credit card companies and other creditors do not have an option to directly take your property, and must act differently. Be aware every action that will be made against you will be civil. Meaning you are not going to be charged criminally ever for debts and will not face jail. The collection process will typically follow these steps:
- Contact you in writing, usually by certified letter, informing you they are attempting to collect on a given bill or debt.
- Sell your debt or bill to a collection agency which will make a concerted effort to harass you into paying your bill or debt.
- Contact one or all three of the major credit reporting bureaus and inform them that you have failed to make payment.
- Sue you in civil court for the amount owed, typically only in cases of debts of a few thousand dollars or more.
Video: How to Handle Creditors When You Can't Pay Your Bills
What Should I Do?
The first thing you have to do is not ignore the situation and let it continue to deteriorate. Stop incurring new debt immediately and follow these steps:
Prioritize your debts from most important to least. Start with the information provided here and put your utilities, insurance and home payment first. Next prioritize your debts based on the highest to lowest interest being charged. - Make whatever payment you can afford, even if it is not the complete bill. An effort to make payment will help you negotiate your debt with the creditor and also in court should there be a civil suit.
- Prepare a balance sheet with your prioritized bills and set up a payment time table based on your income.
- Contact your creditors in writing and explain you are unable to make payment and are looking to find a solution with them such as lowering the amount owed or interest rate charged.
- Seek professional help from a credit counselor.
- Declare bankruptcy only as a last resort.
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