Dealing With Debt

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Making the Effort to Negotiate Can Pay Off



As a result of Janet’s burn injury, she has had to significantly reduce the hours she works. even with ssDI, or social security Disability Insurance, and a very small disability insurance policy, she is having a difficult time financially and has accumulated approximately $14,000 in credit card debt. Last summer Janet saw a television commercial for a debt consolidation company. Because she was very concerned with keeping her credit score high and paying off her debt quickly, she contacted the advertiser who had promised that after using their services “your credit will be in good standing.” Janet signed up.

After 4 months, not only did Janet’s credit rating dropped precipitously—200 points, but she is also in collections with 90% of her credit cards. Janet recontacted the debt consolidation company at the end of november and canceled her agreement. However, in addition to the debt that she had had when she signed up with this company, she has now incurred numerous late fees and over-the-limit fees. In addition to her lower credit score, Janet finds that she in now even deeper in debt.


Typically debt consolidation companies estimate how much they will be able to reduce yourtotal outstanding debt once they negotiate with your creditors. Based on their estimate, theyset up a payment plan with you that will allow you to pay off this lower debt over a 5-year period. What they don’t tell you is that while they are collecting payments from you, they may delay paying your creditors for months in an attempt to negotiate an even lower balance with them. Unfortunately, as a result of this delay, you may wind up incurring late fees, over-the-limit fees, and ruined credit without even knowing it. In addition, for their services, these debt consolidators may charge you 10 to 15% of your outstanding balances and, many times, an additional monthly fee of $30 to $40. as a result of such practices, Janet’s accounts are now with collection agencies and she is even in danger of having her tiny part-time salary garnished!


Janet could have negotiated (and still can) with her creditors herself. It takes time, patience, and politeness, but with so many people currently unable to pay their bills, credit card companies are often willing to negotiate payment plans, lower interest rates, and, in some cases, actually forgive some of your debt.


Before you find yourself in Janet’s predicament, keep in mind that you can attempt to renegotiate your debt by following this straightforward procedure:

  1. Call and ask your creditors to lower your interest rate or outstanding debt, or give you a longer payment option. you may have to ask for a supervisor. If the supervisor can’t help, go to their supervisor and the next supervisor until you get someone with the authority to help you. remember to be polite and patient—they can just as easily hurt your credit as help it.
  2. Record the name of every person you speak with and the date and time of the call. (Keep in mind that creditors usually have their employees give only their first name or an ID number.)
  3. Be honest. explain that you are having difficulty meeting your bills due to reduced income or any other circumstances you are facing. Be aware that you may lose the use of this credit card.
  4. Explain that you don’t want to file bankruptcy or use a debt consolidator. Creditors know that if you do either of these they will get less money.
  5. If your negotiations result in a change in your payments or balance, be sure to send a follow-up letter to the person with whom you negotiated the new payment, outlining your agreement. also provide this information and your account number in a letter and enclose it with your first “revised” payment.

Keep in mind that if you are successful in getting all or some of your debt is forgiven, you will have to pay income tax on that amount. However, that will be less than what you would have owed to your creditors initially.


Even Janet’s situation is not hopeless. my firm is helping her with her problem by contacting all her creditors and the state’s attorney General, as well as the debt consolidator, to discuss what happened. We are confident that we can resolve her financial disaster. It will take time, but we will get her back on track to bring her credit score back.

As a Certified financial planner™ practitioner, this has become a new part of my work. I usually help clients identify their goals and work with them to position their finances to make their goals a reality. However, with so many people losing their jobs, I am also helping my clients’ extended families conquer their debt issues. as a member of the financial planning association’s pro bono outreach, I even help many people struggling with debt for free if they cannot afford my services. many other CFPs® across the country donate free planning and debt repair assistance to people with limited or no income and lots of financial challenges.


In my endeavors, some questions come up frequently. I thought it would be helpful to answer a few of those here: Due to his injuries, Howard has just returned to work. During his recovery his bills just kept mounting up. “I feel like I am always paying the minimum amount on my bills,” says Howard. “Is this a good idea? Will I ever pay off my debt?” the first thing Howard needs to do is make a list of all his outstanding debt, including the interest rate and minimum payment, as shown below. He should put the highest interest debt on the top. He should pay the minimum on the lower interest rate debt and use all his available money to pay off the high-interest-rate debt. (If Howard were to pay only the minimum payments, at a 24% interest rate it would take 40 years for him to pay off his debt.)

Creditor               Total Debt    Finance Rate %     Min. Monthly Payment        Suggested Monthly Payment*
MasterCard          $1,500.00          29.95%                          $65.00                                        $464.00
Macy's                  $  250.00           22.30%                          $15.00                                        $  15.00
Home Depot         $  500.00           22%                               $20.00                                        $  20.00
AMEX Blue          $1,000.00           19.8%                            $55.00                                        $  55.00
VISA                    $1,500.00          18.7%                             $35.00                                        $  35.00
Barnes & Noble   $  250.00           10.9%                             $10.00                                        $  10.00
Credit Union        $1,000.00           9.7%                              $51.00                                        $   51.00
TOTAL                $6,000.00                                               $251.00                                        $ 650.00
*$650.00 Available for debt repayment

Following this plan, it will take 4 months for Howard to pay off MasterCard. then he can repeat the process with the next-highest-finance-rate creditor. 


Ronnie is dealing with posttraumatic stress and has been so late paying some of her bills that she is worried about collection agencies pursuing her. She wonders how to prepare for that or how to avoid it all together.

Ronnie should list all her bills and the payment dates. She needs to look at how often she gets paid and put money aside to cover the bills she has each month before she spends money on eating out, buying clothes, or any other nonnecessities. Ronnie has to take control of her money and make decisions about what she spends and how much she can afford to spend. she can go to or magazines/moneymag/money101/ to learn how to make a budget or she can contact phoenix society to get a Certified financial planner™ practitioner to coach her through the process. Once she knows how much money she has available to pay her bills, she should start a savings account and store her monthly bill payments there. ronnie should also have an emergency fund; that is, 6 to 9 months of necessary spending in the bank in a separate account just for emergencies. Otherwise, should ronnie lose her job while behind on her bills, she won’t have any resources on which to draw. an emergency fund would give her breathing space to find a new job without worrying about collection agencies.html"> or to learn how to make a budget or she can contact phoenix society to get a Certified Financial Planner™ practitioner to coach her through the process. Once she knows how much money she has available to pay her bills, she should start a savings account and store her monthly bill payments there. ronnie should also have an emergency fund; that is, 6 to 9 months of necessary spending in the bank in a separate account just for emergencies. Otherwise, should ronnie lose her job while behind on her bills, she won’t have any resources on which to draw. an emergency fund would give her breathing space to find a new job without worrying about collection agencies. 


Warren’s injuries have kept him out of work for so long that he is barely making ends meet but he is expecting a settlement and wonders, “I have an overwhelming amount of debt that I don’t think I will ever be able to pay off. Is filing for bankruptcy before I get my settlement a good idea?”

Bankruptcy laws vary by state. It is very important that Warren learns what his state regulations allow. If you file for bankruptcy, you must disclose any expected settlements and that money will be considered as part of your assets. If the settlement is an annuity, then the monthly income will be considered.

If Warren files for full bankruptcy (Chapter 7), it will stay on his credit report for at least 7 years. this makes borrowing money very expensive. One of my clients filed for bankruptcy in 2001 and bought a car in 2006. the interest rate on her loan was 22% at a time when the auto loan rates were generally about 5%.

Also, Warren should keep in mind that bankruptcy does not eliminate tax debt, student loans, or child support. While you will eliminate all your credit card debt if you list it in the bankruptcy paperwork, if you forget to list a debt you will still have to pay it off. Chapter 7 also gets rid of collection agencies and will stop collection garnishment of your paycheck. If you have a car loan, the car will most likely be repossessed and if you own a home, depending on the laws of your state, you could lose it.

Chapter 13 bankruptcy is a debt payment schedule worked out by the court. Warren could do this himself if he followsthe steps provided earlierin this interesting website on bankruptcy is Remember, most websites try to sell something, so use them only as a resources. Never sign up for their offers, which usually come with high price tags or low value.

If, like Warren, you are expecting a settlement, you should address your debt now. negotiate with your creditors. (they don't need to know that you will be coming into money.) Get your finances sorted out before you get the settlement so that you will keep more of the money and not lose it to old debt and high credit card interest.


Several websites provide useful information for managing your personal finances. I use to see current interest rates and interesting financial tips and how-to’s. another helpful site is for useful money tips. If you need help dealing with credit report mistakes, collections agencies and credit problems, provides a step-by-step chart on when to send letters to collection agencies and credit bureaus, and how long the process takes. Remember, use the information provided on these sites, but don’t buy or subscribe to anything.

A great way to find out how much debt you have is by looking at your credit report, which you can access online through, the only government-authorized website for free credit reports. Once on the website, you will need to select your state and then fill out the required information to access your report.  Then be sure to print a copy for your records.

If you are unable to answer the necessary questions and have trouble accessing your credit report online, you can print a form from the website and mail it with copies of the proper identification and they will send you a copy. You can get a free report from each of the three credit bureaus (equifax, experian and transUnion) once a year, however, I recommend getting only one report at a time. I get one from a different bureau every 4 months to see who is requesting my credit information and to make sure I haven’t become a victim of identity theft.

Once you get a copy of your report, be sure to review the information. you can correct any mistakes you find using the form letters available on


The most important message to take from this is to never spend more than you earn. you should pay yourself first by taking savings out of you paycheck before you spend anything. always know what you spend—don’t just spend what you have. and start an emergency fund now so that you have peace of mind should you run into a financial disaster.

To find a pro bono Certified Financial Planner™ practitioner who can help you get your finances in good shape, contact the phoenix society by e-mail at .(JavaScript must be enabled to view this email address) or by phone at 1-800- 888-2876.


Clare M. Stenstrom is a Certified Financial Planner™ practitioner with Bourne Stenstrom Lent Asset Management, Inc. in New York City, who has worked in the investment business for more than 30 years. In 2009 she received the Heart of Financial Planning award from the Financial Planning Association of New York (FPA NY). While president of that organization in 2001, she formed the 9-11 pro bono effort that became the national Financial Planning Association’s pro bono outreach. She also currently oversees “Money Work$,” a financial literacy program at Borough of Manhattan Community College.


This story is an excerpt from The Phoenix Society’s® Burn Support News, Winter Edition 2010. Burn Support News is a quarterly publication that contains articles on the emotional, psychological, and social aspects of burn recovery.  All Rights Reserved.
The Phoenix Society, Inc.® • 1835 R W Berends Dr. SW • Grand Rapids, MI 49519-4955 • 800.888.BURN •