How to Bail Yourself Out From a Sea of Christmas Debt : Credit: For many, holiday glow turns to a blanch when they realize they owe more than they have. There’s a right way and a wrong way to deal with collection agencies.
So you went a little overboard with your kids’ Christmas presents--all right, a lot overboard--and you probably shouldn’t have offered to fly all your relatives in for that New Year’s reunion.
But the magic of the holidays was just too overpowering, you say.
Now you’re paying the price. In fact, for some people, the spirit of the Christmas just past will linger for months ahead as holiday bills roll in and debt collectors follow.
Holiday expenses often are compounded by other big winter bills, like higher heating costs, annual insurance premiums or taxes.
“It’s a tough season . . . (but) people really hit the credit cards,” said Craig J. Costanzo, who runs Management Adjustment Bureau Inc., a Buffalo, N.Y., collection agency.
To be sure, Visa reported a 32% jump in retail spending on cards between Thanksgiving and Christmas, compared with the same period in 1992. MasterCard said charges were up nearly 24%.
Costanzo--who also is president-elect of the American Collectors Assn. trade group in Minneapolis--says many of the nation’s 6,000 debt-collection agencies are anticipating a busy spring and summer, when credit issuers start passing on overdue accounts from the holidays.
“It’s a real growth industry,” Costanzo said of business. “No. 1, there’s more debt to be collected; No. 2, credit grantors are cutting staff back and outsourcing more work.”
About 227 million accounts totaling $75 billion were handed over to collection agencies in 1992, the most recent year for which data are available, the ACA says. That compared with 232 accounts and $70.6 billion in 1991.
The average recovery rate is 19 cents on the dollar. Of that, debt collectors keep up to half.
While it’s best to work with a creditor before your account reaches this stage--at the very least to avoid a poor credit rating--it’s also important to understand your rights and responsibilities under the law.
You’re still responsible for your debts, and the creditor that hired the collection agency can take legal action against you.
But the Fair Debt Collection Practices Act, which became law 15 years ago, outlaws unfair collection practices, including harassment, by collection agencies.
“It’s very important for you to know what your rights are and not to be intimidated by the collector,” said Gerri Detweiler, director of BankCard Holders of America, a consumer group based in Herndon, Va.
Detweiler notes, for instance, that collectors cannot call you before 8 a.m. or after 9 p.m., cannot use abusive language; cannot tell others about your debt, even family members; and cannot collect more than you owe.
You can get debt collectors off your back by simply writing them to cease all communication with you.
Detweiler and experts from other consumer groups advise that individuals be honest about debt problems and try to work out a repayment schedule with the collector. Sometimes, a collector might even accept less than what is owed.
Costanzo says collection agencies often will act as a “financial resource for getting people to work out their debts.” But he admits abuses sometimes exist in collection practices, especially in the absence of industrywide standards.
Sometimes, he says, collectors lose their tempers under pressure. “When people are abusive to you all day you’re just going to pop. This is a very difficult business,” Costanzo said.
Holly Cherico, a spokeswoman for the Council of Better Business Bureaus Inc. in Arlington, Va., says most consumer complaints about bill collection agency harassment eventually are settled.
The Federal Trade Commission polices serious collector abuse of the law through class-action civil suits. In the past 14 years, the agency said, it has sued 30 collection agencies.
Many creditors, particularly larger ones, prefer to bypass debt collectors altogether.
“It is the last resort for us,” said Phil Davis, a senior vice president at NationsBank Corp. in Charlotte, N.C. “We will work out accounts in-house up until the time the account is seven months delinquent and then charge it off.
“It gives us that much more control over collections.”
Davis said his bank may do things such as negotiate a lower interest rate, lower the minimum payment or even waive interest for a time.
“Someone who is having some significant personal financial problems . . . because of illness or if they’re out of work, you want to bend over backwards for,” he said. “(But) . . . if the consumer has enough income to pay us, we may not be as flexible with them.”
Besides working directly with a creditor, consumers also can turn to the National Foundation for Consumer Credit of Silver Spring, Md.
More than 400,000 families met last year with counselors at the foundation’s 1,000 offices.
