Review of FPU – Week 5
Last week’s lesson, entitled “Credit Sharks in Suits,” was more than a little disturbing. Dave talked in detail about how the debt collection industry should work – there are laws set up specifically to govern the activities of debt collectors. In reality, bad collectors often break these laws and are abusive towards debtors. In our small group discussion after the video one participant told a story of being harassed by a debt collector who called her repeatedly, sometimes 19 or 20 times before lunch. Anyone who is working with a collector should “arm themselves for battle” by knowing the Fair Debt Collections Practices Act. If you aren’t dealing with a collector yourself, it’s likely that one of your friends or family members is. You can check out a list of frequently asked questions here: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm.
Throughout the lesson Dave emphasizes the point that if any one of us owe a debt, we should pay it. Psalm 37:21 says, “The wicked borrows and does not pay back, but the righteous is gracious and gives.” If a savvy debt collector finds out that you are a Christian, he/she may actually quote this verse to you! Collectors use a dynamic database system, so everything that you say will be documented and potentially used against you in the future. If a collector quotes this verse to you, be prepared. They are attempting to illicit a strong emotional reaction from you. If they do so successfully, they will continue to “push that button.”
“It’s God’s will for you to live in prosperity instead of poverty. It’s God’s will for you to pay your bills and not be in debt. “ – Joel Osteen
So what do you do if you want to pay your debts but there simply isn’t enough money each month?
Stop spending! Don’t be like an ostrich with your head buried in the sand waiting for the problem to go away. It won’t. I actually did this once in high school – AP Chemistry. I’m definitely a right brained person; science and math have never been my strong suits. I have no idea how I ended up in AP Chemistry, but I was instantly in way over my head. I completely ignored my falling grade and just kept trying to study. I ended up sitting in the school counselor’s office with my mom talking about my first ever failing grade. The ostrich approach does not work.
Sell something! What do you have laying around your home that you don’t need anymore? Post it for free on Craigslist (http://phoenix.craigslist.org/). You’d be amazed at what you can sell…we actually sold a broken Xbox 360 that had retired to the closet. Turns out some handy person in the East Valley likes to fix broken Xboxes and resell them for his “side job”.
Cover the 4 walls first! None of us should be current on a credit card, but going hungry or about to lose our home. Always pay the 4 walls first: shelter, food, utilities, transportation.
Start the Debt Snowball! Organize your debts, smallest to largest. Be “gazelle intense” about paying off that first, smallest debt. Any extra money from working extra shifts, selling things around the house, etc. should go to paying off that first debt. I can say from personal experience that once you pay off that first debt, the snowball really does pick up speed.
Explain your situation to collectors. If you cannot make the monthly payment on each of your debts Dave proposes using a Pro Rata plan. Say you add up your debts and they look like this:
In this example, after you cover the 4 walls you don’t have enough money to pay the minimum payment on each of these debts. Determine what percentage of total debt each of these three items comprise:$200/$1000 = .2 or 20% $300/$1000 =.3 or 30% $500/$1000 = .5 or 50%
Then allocate your available monies to your debts based on the percentages listed above. Say you have $100 total to put toward your debts:.2 * $100 = $20 towards Visa .3 * $100 = $30 towards Home Depot .5* $100 = $50 towards Nordstrom
Dave proposes actually sending a copy of your plan to your creditors so that they can your logical thought process. While there is no guarantee your collectors won’t pursue legal action against you, receiving even a small payment (a few dollars) will typically reset their database and give you more time.
“What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?” – Adam Smith