How to help your struggling clientJohn Dickinson, DebtX
It’s common for people who are struggling with debts like credit cards and personal loans to go to a broker to refinance their mortgage to free up some money to clear their problem debts. A new mortgage can be a perfect solution to help people get back on their feet by consolidating troublesome accounts into one low rate loan.
The problem is this is not always possible, often due to insufficient equity or income. In these cases, even though a new loan may not be possible I’m sure you still want to help your client in some way.
Here’s how… if someone is behind with their debts, the best thing they can do is to call the creditor and tell them they are in financial hardship. While this seems like an easy thing to do, for the person affected it can be a very hard call to make as there is often embarrassment with admitting they’re having financial problems. It’s understandable that people don’t want others to know they’re going through a difficult time financially, however the truth is most people will experience a bump in the road at some point and taking charge and asking for help is the first step to recovery.
Many people are worried that the creditor will act aggressively if they call them about a delinquent debt. When people don’t know what to do once they are behind with accounts, it’s common not to respond to letters and calls from the creditor, so to contact them can take real courage.
Let me ask you a question, if an unsecured debt like a credit card or personal loan is behind, is it the borrower’s problem or the lenders problem? The answer is both. Many people think the problem is all theirs, however as a creditor has limited options to recover an unsecured debt, they are usually very happy when a borrower contacts them. Rather than being angry they typically welcome these calls with open arms and will have a genuine desire to help.
Credit providers know that being aggressive with a struggling borrower seldom leads to anything positive and is more likely to push them further away to a point where communication may be cut off altogether.
Large credit providers such as the banks take cases of financial hardship seriously and have entire departments dedicated to this as they know that helping their struggling clients often leads to a better outcome for all concerned.
The other reason credit providers are usually helpful when it comes to delinquent debts is the law requires them to be, at least with consumer credit. Legislation such as the National Consumer Credit Protection Act (NCCP) talks about a creditors obligation to assist a client that is experiencing financial hardship. Section 72 of the NCCP states:
“A debtor who is unable reasonably, because of illness, unemployment or other reasonable cause, to meet the debtor’s obligations under a credit contract and who reasonably expects to be able to discharge the debtor’s obligations if the terms of the contract were changed may apply to the credit provider for such a change”.
The Banking Code of Practice also talks about its members having to assist their struggling clients. Its states:
“With your agreement and cooperation, we will try to help you overcome your financial difficulties with any credit facilities you have with us. We could, for example, work with you to develop a repayment plan”.
Exactly how a credit provider will help a struggling client will differ depending on the situation and the policies of that particular lender, however financial hardship assistance is usually a period (typically three months) with nil or reduced payments to give the client time to recover from what is causing the issue. Things do get a little more complex if the borrower’s position is unlikely to improve in the future but even in these cases, most creditors will look into constructive options rather than continue to pursue the borrower for a debt they are unlikely to recover.
The other positive thing about contacting the creditor when a debt cannot be serviced is it will help preserve the borrowers credit file. Typically, a creditor can list a default after a debt is sixty days late, given they have followed the correct procedure. Usually when an account is placed under financial hardship the creditor will stop recovery action so they will not list a default on the borrower’s credit file. This is a big deal as once a default is listed it will be recorded for five years, even if the debt is paid, and during this time the default will make obtaining finance very tough so avoiding the listing of a default makes calling the creditor even more important.
Even though it can be tough, contacting the creditor and asking for help is the best thing a struggling borrower can do, and in most cases, it will lead to a solution.