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This Halloween, as we face our fears and approach the end of the year, we thought it would be a good time to talk about DEBT. At its most basic, “debt” is a consumer’s obligation to pay money arising out of a transaction. Pretty much everyone deals with debt in their lives. If you use credit cards, have a mortgage on your house, have a car loan, or pay student loans, you have debt.

Although debt is common, it can become a problem when you are no longer able to meet your various financial obligations. Maybe you unexpectedly lost your job or had to receive unplanned medical care. Maybe you had an expensive appliance break or experienced a natural disaster. Or maybe it’s just been a challenging year. For whatever reason, many people will face a financial crisis at some point.

Being proactive about your debt problems can be a good strategy to prevent a bad situation from getting worse. Here are six ideas to consider if you are feeling overwhelmed by your debt.

1. Make a budget. One of the first self-help strategies you might want to consider is making a budget. Although this tip sounds obvious, you may have never really sat down to calculate your monthly expenses. By figuring out exactly how much you spend every month, as compared to your income, you may discover certain discretionary expenses that can be reduced. A budget can start with a simple hand written list of all of your expenses, and the Federal Trade Commission (FTC) offers this worksheet to help you out.  There are plenty of budgeting websites and apps available, like the options suggested by Wirecutter, a product review site owned by the New York Times.

2. Gather and review any relevant documents. Depending on the type of debt you owe, you may have signed some kind of written document stating the terms of your agreement/contract. Be sure to locate and carefully review these documents when you anticipate having trouble making your payments.

Knowing the terms of your agreement may be particularly useful if you have secured debt. Debt may be unsecured, i.e. not attached to a particular asset, or secured. Secured debt is debt that is backed by “collateral,” or in other words, an asset, like your car or your house. The collateral is designed to reduce the risk of lending to you. If you default on your obligation to pay, the asset securing the transaction may be repossessed or foreclosed upon. You will want to read your contract carefully to see what the creditor’s rights are when you do not make a full payment and whether there is any grace period built into your agreement.

3. Contact your creditors. When you know you are having trouble making full payments on your debt, consider contacting your creditor/lender directly to let them know your situation. You may be able to develop a more workable payment plan with them given your specific circumstances. Contacting your creditor/lender may help address the problem early before the situation worsens.

4. Consider debt relief services or debt consolidation. You may also want to consider using some type of debt relief service. Credit counseling organizations, which are usually non-profits, may be able to help you make a budget and develop a plan for tackling your debt. They may suggest you use a Debt Management Plan to set aside funds for paying off what you owe. You might also consider using a Debt Settlement Program, where a for-profit company (typically) will offer to negotiate a lump sum arrangement for less than the amount owed.

There are potential risks to using one of these services and you always want to be mindful of possible scams. The FTC has a more in-depth guide on “Coping with Debt” that walks through the pros and cons of using debt relief services or pursuing debt settlement.

5. Know your rights when dealing with a debt collector. If you have debt that is past due, you may be contacted by a debt collector, i.e. a person or company that regularly collects debt. Ignoring a debt collector is unlikely to make to make the problem better!

However, you should know that the federal Fair Debt Collection Practices Act (FDCPA) affords you certain protections in dealing with a debt collector. There are limits on when and how a debt collector can contact you. For example, a debt collector cannot generally call you before 8:00 AM or after 9:00 PM, and they must honor your written request to stop further contact. Debt collectors are not allowed to harass you, lie, or use unfair practices in trying to collect your debt. You can check out the full FDCPA here or read more about Debt Collection FAQs from the FTC.

The Consumer Financial Protection Bureau (CFPB) also has sample letters on how to respond to debt collectors, including how to request more information, state you do not owe the debt, and ask the debt collector to stop contacting you.

6. Contact an attorney. There are several ways an attorney can help you navigate a debt crisis. For example, if you are considering filing for bankruptcy, an attorney may be able to help you understand your options and file with the U.S. Bankruptcy Court under the correct chapter. Are you being sued by a creditor or debt collector? Do not ignore a court summons! If you do not attend your court date, you may miss your opportunity to defend yourself and will likely receive a default judgment against you. An attorney may be able to help you answer the complaint, develop a strategy to defend yourself, and present a compelling argument to the judge.

Here at the Lawyer Referral and Information Service, we are happy to provide you with a referral to a private attorney with experience in bankruptcy, debt collection, or consumer protection. The attorney will provide an initial free consultation and then let you know how much their services might cost. Just give us a call at (865) 522-7501 or contact us online at www.knoxbar.org/referral to get your free referral today.

Additional resources

Government Resources

• The Federal Trade Commission has many resources about “Dealing with Debt:” https://www.consumer.ftc.gov/topics/dealing-debt
• The Consumer Financial Protecting Bureau has a variety of consumer tools: https://www.consumerfinance.gov/consumer-tools/
• The Tennessee Attorney General’s Office is participating in a nationwide crackdown on phantom and abusive debt collection. Read more about their efforts and learn how to protect yourself here. Check out their Division of Consumer Affairs for additional consumer protection resources.

More General Information

• The KBA’s LAWLINE ONLINE explores many of these topics in more depth: www.knoxbar.org/lawline
• The Legal Aid Society of East Tennessee has a series of brochures with easy-to-understand guidance for consumers: https://www.laet.org/legal-information/
• Similarly, the Legal Aid Society of Middle Tennessee and the Cumberlands has numerous booklets on money problems: https://las.org/find-help/self-help-resource-center/legal-help-booklets/money-problems/
• Help4TN.org has numerous, relevant blog posts about money problems: https://www.help4tn.org/topics/360/money-problems.