What You Need to Know About Managing Your Debts
Authored By: Texas RioGrande Legal Aid - Austin
If you are in debt, here is some basic information about how to get out from under or manage those debts:
- The first step is to stop spending money you don't have. For example, stop using credit cards if you cannot make the required monthly payments.
- The next step is to assess where your money is going. By finding out where you spend most of your money, you will be able to better understand your debt. After you figure out your major expenditures, you can make a plan for cutting out some expenses. Basic living expenses, such as food, shelter, medicine, electricity, and water should not be sacrificed. However, the money you pay for satellite or cable TV, cellular telephones, or car notes you can't afford could be better used to pay down your debt.
- Once you have examined your spending habits, you should make a list of all of your debts. Make a list of debts owed in order of interest percentage. For example, a credit card with 19% interest would come before a card with 12% interest on the list. The debts with the highest interest rates should be your priority for payment. Determine the maximum you can pay on that debt while still paying the minimum on your other debts.
- NEVER take out a home equity loan to pay off debt. In doing this, you only jeopardize your home. While creditors cannot take your home to pay off debts, they can foreclose on your home if you have a home equity loan that you cannot pay.
Additional information about debt, creditors, or credit counseling can be found at the Texas Rural Legal Aid, Inc., website,www.trla.org.
When you are in debt, you will most definitely have to deal with creditors. A good strategy in this situation is to contact the creditor personally instead of waiting for them to contact you or before the creditor hands the matter over to a collection agency. In some cases, the creditor will refinance or modify the payment agreement rather than pay a debt collector. Remember: the creditor does not want to HAVE to hire an outside party. Dealing directly with the creditor could save you time, money and hassle.
If the creditor does turn the debt over to a collection agency, you have certain rights of which you should be aware:
- The debt collector is prohibited by law from attempting to collect more than the amount originally agreed upon - whether the agreement was in writing or not. However, you might also be responsible for attorney's fees, investigation fees, service fees, collection fees, or other charges.
- You have the right to dispute an item concerning your debt in the debt collector's file. The debt collector has a responsibility to alert anyone who has already received a report containing the incorrect item. If, at the end of 30 days, the debt collector has not been able to determine whether or not the item is correct, the collector must make the change you requested and notify anyone who received a report containing the incorrect item. If it is later determined that the item was initially correct, you must be notified and collection efforts may be continued.
- Under state law, the collection agency may not use harassing or abusive collection tactics. It is illegal for any debt collector to threaten violence or other criminal acts, use profane or obscene language, falsely accuse you of fraud or other crimes, threaten you with arrest or repossession or other seizure of property without proper court proceedings. Additionally, the debt collector cannot use the telephone to harass you by calling anonymously or making repeated or continuous calls. If the debt collector calls you collect, he or she must disclose his or her true name before charges are accepted.
- Federal law- the Fair Debt Collection Practices Act- only applies to third-party debt collectors, i.e. those working for professional debt collection agencies and attorneys hired to collect a debt. Under this law, you are protected from calls at work if the collector has reason to know your employer does not permit such calls, calls before 8 a.m. or after 9 p.m. unless the collector knows such times are more convenient for you, any "unfair or unconscionable means to collect or attempt to collect a debt;" and any conduct to harass, oppress, or abuse.
If you write a letter to a collector that is harassing you demanding that he/she stop contacting you, the debt collector must cease all correspondence. After receiving the letter from you, the debt collector has only three things he/she can do:
- Stop doing business with you.
- Report your default to a credit bureau.
- Sue you in court. (This course of action may be upsetting to you. However, the threat is not as serious as the debt collector might make it sound. If you are sued, you can represent yourself in court and explain why you are unable or should not pay the debt.)
IMPORTANT: No matter what a debt collector might tell you, your wages and home are protected. In Texas, a homestead cannot be taken to pay an unsecured debt except for debts incurred for the purchase of the home, for home improvements, for home equity loans, or payment of certain taxes. In regard to your wages, they may be garnished to pay court-ordered child support, back taxes, and defaulted student loans.
For more information about the difference between unsecured and secured debt, refer to the Texas Rural Legal Aid, Inc. website,www.trla.org.
If you feel you have been a victim of illegal debt collection practices, contact the Attorney General of Texas. For contact information or further information about fraudulent debt collection or abusive collection tactics, refer to the Web site,www.oag.state.tx.us.
This information was compiled and is a public service by the Attorney General's Office of Texas.