Credit Companies Crack Down The credit crunch means some credit card companies are clamping down on outstanding debt. Our personal finance contributor discusses how to get and keep the best credit deal.
NPR logo

Credit Companies Crack Down

  • Download
  • <iframe src="https://www.npr.org/player/embed/90401701/90401673" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Credit Companies Crack Down

Credit Companies Crack Down

  • Download
  • <iframe src="https://www.npr.org/player/embed/90401701/90401673" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

ALEX CHADWICK, host:

I'm Alex Chadwick. Has a debt collector called your house recently? If so, you're not alone. In its most recent consumer credit report the Federal Reserve said we accumulated debt in March at twice the expected rate. Consumer borrowing rose to a total of nearly 2.6 trillion dollars. Now there's a credit card bill. Here with advice for the debt ridden, Michelle Singletary, Day to Day's personal finance contributor. Michelle, first, do consumers have rights when it comes to debt?

MICHELLE SINGLETARY: They absolutely have rights. Their rights come under the Fair Debt Collection Practices Act, which protects people from illegal collection tactics, like they can't call you at any time of day or night. They can't call your neighbors and tell them you're deadbeat and that you owe money. There are lots of things that they cannot do, and you definitely have rights if you owe money.

CHADWICK: And if you do get these calls at home from a collection agency, what should you do?

SINGLETARY: Well, the one thing you should not do is not answer the telephone. There are surveys that show that people will not pick up the phone, they won't call their creditors when they get in trouble. And that's the last thing you should do. It's really bad. If you are having trouble, you need to call your creditor. You need to answer the phones from them so they can understand what's going on. And the other thing is don't agree to a payment that you can't keep up.

They're pressuring you to pay say, 200 dollars a month, and you really only have 50 to spare? Just say that's all I have, because there's no point in promising a payment and then going back on that so that if you have trouble in the future, you have less to negotiate with them because you've already broken one agreement.

CHADWICK: What about saying, OK, I owe you a total of 2,000 dollars, why don't we just make it 1,500, and I'll actually pay that off? Can you negotiate down the whole nut, not just the monthly amount?

SINGLETARY: You absolutely can. And listen, if you had 2,000 and you offer 15, they would be jumping off their chair. That's a great offer. That is key, Alex, the cash. Cash is king when negotiating debt. Because listen, cash-in-hand is worth much more to a debt collector than a promise to pay over time in the future, because already you've broken that promise.

You haven't paid. So if let's say you've got that 2,000 dollar debt, and you've only got a 1,000. Offer them a 1,000 in cash, and more likely or not they're going to take it. Now, depending on how old the debt is and who the creditor is will also depend on how much they're willing to negotiate down. But I'll tell you, the more cash you're able to offer, the more likely you're going to be able to get that debt reduced.

CHADWICK: And what do you do to make sure that they don't suddenly say at the end of that period, oh, wait a minute. You do owe us another 1,000 dollars. Can you get this in writing, or...

SINGLETARY: Absolutely. Before you send a penny to the collector make them send you a letter laying out all the terms, that the debt was this amount, you have agreed to pay this amount in cash, and get them to sign it on a letterhead, everything official. And once you have that letter in hand, not before, then you send off that money. I would recommend getting something that you have a receipt for, like write a check for it. If you write a money order, keep that money-order receipt. And you want to keep this paperwork until you die.

I'm serious about this. Keep it until you are in the ground. Put it in a folder. Keep it with all your most important papers. Because the problem is a lot of creditors sell debt portfolios over and over again. And they may get it mixed up and not realize that you've actually paid this. And say they come back 10 years later. If you don't have the paperwork, you could find yourself in trouble again, you know, pay a debt that you've already paid.

CHADWICK: Dollar wisdom from Day to Day's personal finance contributor, Michelle Singletary. She writes the "Color of Money" column at the Washington Post. Michelle, thank you again.

SINGLETARY: You're so welcome.

Copyright © 2008 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.