Frugal Intuition

When I went home at lunch today, I found a class action lawsuit check in the mail.  After a little digging, I discovered that it was in response to this lawsuit.  You can read the full ruling here .  According to the ruling, this company AmeriDebt, which also did business under a few other names like Debticated (which may have been the one dear hubby used),

deceived consumers with claims that AmeriDebt was a nonprofit organization and that it provided counseling services to consumers seeking to get out of debt. The FTC charged that, rather than operating for charitable purposes as advertised, AmeriDebt funneled profits to affiliated for-profit entities and individuals, including DebtWorks and Pukke. The complaint also charged that the defendants did not provide counseling services, but simply enrolled every customer in a debt management plan (DMP). According to the FTC, AmeriDebt also deceived customers when it claimed that it did not charge an up-front fee. Instead, the complaint alleged, AmeriDebt kept its clients’ first payment under their DMPs as its own fee, rather than disbursing the money to consumers’ creditors as promised.

I don’t personally remember much about our experiences with this company.  It might have been before we got married.  It’s been so long since my husband did business with this company, we’d forgotten about it.  He certainly never signed on for any class action suit.  I suppose he was still in their database somewhere.  We’ll be taking that $14.09 and probably going to see a matinee and sharing a Dr. Pepper.

But the whole thing got me thinking.  Consumer debt is a massive problem in our country.  You can’t turn on the TV these days without seeing an ad for some company or program that promises to get you out of debt, help you settle for pennies on the dollar, etc.  They all set off giant neon warning signs for me.

Here’s a little secret. 

You don’t need some other company to negotiate on your behalf with your creditors.  You can do that yourself.   Here’s the thing: they want to get paid.  So you call them up (an intimidating prospect if you’ve been avoiding their calls) and you explain your financial circumstances.  Don’t let them bully you into believing you have to pay them all off right then.  If you had the money to do that, you’d have done it already, wouldn’t you?  You can’t squeeze blood from a turnip, as my grandfather liked to say.  Instead, stand your ground.  Explain your circumstances and tell them what you can afford to pay them.  If you’re one of those people who has been a “good customer” and has never been late or missed a payment, but you’ve only been paying the minimum balance (and hence your balances aren’t shrinking), ask them if they can lower your interest rate.  Hey, if they say no, you’re in no worse shape than you were before.  And they just might say yes.

Now here’s what you need to do.

Take all the credit cards out of your wallet or purse.  All of them.  And any others you have hidden somewhere else.  Got them all out on the table?  Good.  Now cut them all up.  In tiny pieces.  Or you can cut them in pretty shapes and use them for Christmas ornaments.  The point is to get them OUT of your wallet and remove the temptation of using them.  As long as you continue to use credit cards without paying the balance off in full every month, you’re going to be paying for the rest of your life.

Next up, pull out all of your most recent credit card bills.  Read all that tiny print until you find the spot where it lists your interest rate.  Now highlight that. Now take all those bills and arrange them in order of highest to lowest interest rate.  You now have your priority list.  The idea is that you pay off the card with the highest interest rate first.  You will be making minimum payments on all the other cards, but this is your focus.  All extra funds should be dedicated to this card.  Once it’s balance is zero, you’re going to write a letter immediately to the company and request that they close the card immediately and send you proof of such in writing.  Save a copy of this letter.  When the notice from the company comes that they have complied with your request, staple that to your letter and your final bill and keep them in a file.  Now take the amount of money you were putting toward that first card every month and apply it to the minimum payment you were making on card number two (with the second highest interest rate).  And you’ll do the same thing on down the line.  This is known as the snowball method (because as you get stuff paid off, the amount you can pay on each card gets bigger and the payoff comes faster).  This is a long process, depending on how much debt you’re carrying, but it does work.  And if you have some kind of change in circumstances like losing your job, don’t wait until you start missing payments.  Call your card company and explain to them right off.  It will go a lot better if you let them know on the front end what’s going on.

But I thought that closing credit cards was damaging to my credit.

Okay, yes, sure, you’re going to take a little bit of a hit when you close those cards, but if you’re in debt and struggling to make payments, your credit probably isn’t in that good a shape to begin with.  In order for this process to work, you need to avoid taking out any new cards or loans of any kind until you get things taken care of.

The point of all this is that you can fix things yourself.  It just takes dedication and good sense.  So take heed and listen when I caution you against these so called consumer credit counselors.  There are more wolves out there in sheep’s clothing than actual helpful sheep.