Dealing With Creditors
Updated: Apr 6, 2020
Here is an outline of what I recommend if debt is a problem. First, establish a spending plan (see The Spending Plan) that takes care of your needs. Once that is done with great care, it is time to address your creditors and set a plan to retire the debt. First, make a list of all your creditors and note down how much you owe each of them. Total them all up. Then assign what percentage of the total each one of them is. That will be the percentage of the total amount you have to repay to each of them. In other words, if you owe all your creditors a total of $10,000 and you owe Visa $2500, and you have a total of $500 available to pay debt each month, then Visa gets 25% of the $500 available to pay everyone, or $125.
You do not go by how much the minimum payments are. You go by how much you can afford after adopting and living with a reasonable and responsible spending plan. Obviously, you can't pay your creditors less than the minimum payment owed if you have a new Porsche in the driveway. I'm talking about the right amount in each category, to take care of yourself without indulging or depriving. Sure, you may have to go through your list of expenses and cut some down if you can. You may have to do it more than once. But once you've done the plan well, then you repay according to how much you can reasonably afford to pay your creditors each month.
That raises the obvious question of what to do about the creditors you need to pay less than their minimum payment. How do you get away with that? This is where you get up your courage and contact them all to inform them of your plan. You will need to let them know why you can't pay and promise you will stay in touch. If they push you, just repeat that you will send the amount you have allocated to them each month, and then do it. If the amount you have left to pay is legitimately zero, you will need to ask each one of them for a moratorium on payments until you can work out a repayment plan.
Each creditor will handle this approach differently and some can be super frustrating and annoying to deal with. Collection agencies, for instance, can be the most aggressive (once it gets to a lawyer, as long as it's not a functioning collection agency masquerading as a lawyer, it's actually easier). But most creditors are more flexible and understanding than you might think. What if they said they will sue me if I don't pay what they are demanding? Fair question. The answer is, if you are being reasonable in your sending plan and have been truthful and forthcoming with them, then if they say they will sue you all I can say is what can you do--they sue you. In my experience though, that is way less scary than it seems (and I have long, wide, and deep experience here) if the thing actually gets to court the judge will more than likely be completely reasonable.
It only makes sense. You can't pay what you can't pay. If you attempt to, you will likely end up in the same cycle you were in that caused the debt in the first place. You have to stick to your guns. Pay what you can afford. Again, with the caveat that you have truly done your spending plan in a focused and reasonable way. Eventually you will pay them back.
The big thing here is to stop borrowing. Maybe that would be a good idea for anyone who has found themselves over their head in debt. And by maybe, I mean it is. If, somehow, you can't commit to not borrowing ever again, at least commit to it while you are retiring the debt in your spending plan. It is not fair to borrow and service new debt while you have asked your old creditors to accept less. Besides, they will not take kindly to it should they discover that fact (seriously easy for them to discover).
If you owe taxes the IRS is among the most understanding and flexible creditors. If you owe less than $50,000 to them, you can set up a payment plan online without even producing documentation. If you owe more complex or rougher types of creditors you may need to have more tailored approach, especially if the only other way is bankruptcy.
I could address this topic for hours and hours. The ins and outs of special circumstances, complications with family, trusts,, and partnerships. You name it. But this is the basic outline.