Lesson 4: How Much Credit Can You Afford?

MYM-3-03

Recognizing and Dealing with Credit Problems

The best way to handle debts is to avoid them in the first place. But for the majority of families that is very difficult to do. If you answer "Yes" to two or more of the statements in Worksheet 4-C, then it is time for you to do something to better manage your debt load.

Worksheet 4-C: Recognizing Trouble Can you recognize the credit danger signals? Answer these statements as they apply to you. Check YES or NO. Yes No       1. Fail to save money.     2. Always out of money before payday.     3. New monthly charges are MORE than account payments.     4. Longer time needed to pay account balances.     5. "Juggling" payments to creditors.     6. Borrow to pay "fixed" costs such as insurance.     7. Credit card "cash advances" used to pay everyday expenses.     8. Creditors call and send letters demanding payment of overdue bills.     9. Unsure how much you owe.     10. Frequently late in paying bills. Now, total up the number of "yes" blanks you have checked. 1 "Yes" = Signals Caution 2 "Yes" = Trouble Brewing 3+ "Yes" = You should be very concerned and need to take some steps now to help correct the problem. Ohio State University Extension, 2002.

If you did not complete "Know What You Owe" (Worksheet 2-A), do so now.

• Make sure you know who you owe and how much you owe them. List each creditor (loan company, bank, department store, family member), the total balance owed, and the date the monthly payment is due. On the chart, list the total owed/total balance, the amount of the monthly payment, the due date, and any amount that is past due. Total the amount owed. Then add together your monthly payments. Worksheet 2-A, "Know What You Owe," gives a complete picture of your credit situation.
• Look for ways you might increase income or decrease spending. Try to free up some income so you can make your payments. You might want to re-read Lesson 3 for tips on reducing your spending leaks.
• Do not use any more credit until you are in better financial shape. Put your credit cards away in a safe place so you will not be tempted to use them. You may decide to cut them up! Some budget counselors use this technique with clients before working with creditors to adjust payments.
• If you see you will not be able to make your payments, contact your creditors. DO NOT IGNORE THEM! If you do not contact them about your financial difficulties, and do not make scheduled payments, your account may be turned over to an independent collection agency. However, many creditors, if they know the facts about your financial problems and are convinced of your intent to pay, may agree to defer payments or refinance the debt to reduce the size of your monthly payments. Many are willing to make some other kinds of arrangements with you.

To be helpful, creditors must know of problems BEFORE payments are overdue. Working out a plan with a creditor is the best strategy. Be honest about how much and when a payment can be made. Then, above all, BE SURE TO KEEP YOUR WORD. If a creditor is willing to accept less than full payment at a time that is convenient for you, get it in writing and be sure to follow through on the promise.

• Contact the Ohio State University Extension office in your county and ask for In Over Your Head-Life-Saving Strategies for Financial Crisis, Bulletin 781 ($2.25). This will provide more information on handling credit problems and how to select a counseling service. Also, you can request a free POWERPAY computer analysis to look at different ways to pay off credit.
• Contact a non-profit credit counseling service for help.