Amongst the bad debts, there are few names enumerated below that come to the forefront especially in the present day American scenario:
Credit Card Debt
Americans have problems with credit cards because many of them have huge credit card debts. The interest rates ranging anything between 5% to 30% and balance not paid at each month end cycle, accrue the interest portion even exceeding some time the principal amount drawn as loan.
Some of the credit cards accrue interest on past interest making the total amount of the debt enormously high. It needs lot of care and budgeting to pay in full at each billing date. It also requires restrain on oneself not to buy things beyond somebody's means. In all such credit card payments , it is always very tempting to pay the minimum when somebody responsible enough should pay in full to avoid future financial encumbrances. It is always to be remembered that if you cannot pay in full, at least pay the minimum.
Car Loans:
To avail a car loan is a bad idea mainly because a car looses it value as soon as it is purchased unlike home or student loan where it escalates or prospects in store. In very simple terms, any investments you make in purchasing a car starts losing the gain you could have earned otherwise, the moment you drive off the car from the showroom.
Further, when one consider that you are going into debts just for the sake of riding a car and that too with higher rate of interest compared to other traditional loans, which will end up costing much more in the end, and finally the resale value will be far less than at what cost you purchased. In a nut-sell, taking loan for a car purchase is a bad debt in the true sense of the term. If somebody is not in a position to pay from his income or manage to pay for the car purchase without taking a car loan, it is better for him not to go for the car purchase by taking a car loan.
Payday Loan:
Taking payday loans is probably one of the worst financial decisions that a family man in particular and any person in fixed income group in general, may take. Without any semblance of any doubt, one may surmise that this is a way to end up ruining your credit and putting yourself in unnecessary debt trap.
The interest rate of a payday loan is enormously high normally in triple digit plus fees each time you borrow , this loan can only termed as horrendous and possibly the worst type amongst the bad debt category. Once you borrow enough to cover a paycheck , you owe again to the lender your next paycheck which means you will need another round of loan to cover that paycheck and the process repeats itself and the vicious circle will overwhelm the borrower no end.
Recovering bad debts can be an arduous task, particularly in days of economic downturn and recession when the frequency of bad debts rise. But before a bad debt can be reclaimed, it has to be identified in time before things become worse. This is the first step in salvaging a bad debt. The next step is to collect the debt. We discuss these two steps in this article in more detail.
Identifying a bad debt early improves the chances of reclaiming it. The creditor has to look for indications in customer's conduct that point to impending default. The following are some of those indicators.
- The customer frequently breaks the terms of repayment like late payment, postponement, etc. offering frivolous excuses - The contact person is unavailable whenever a call is made for debt collection - Unrealistic complaints are made by the customer with regularity regarding the quality of product or service or both whenever asked for payment - The debtor fails to answer reminders through phone calls and / or in writing. Also the debtor changes the contact telephone no. and / or address without leaving forwarding information
Gathering information about the customers through sources like suppliers, other customers, financial papers etc. would help in identifying customers who are not financially sound and early recovery of debts. Bad debts can be minimized by regular exchange of customer information between sales and finance departments
The next step after noticing a bad debt is to act on reclaiming it. It is better to try to recover it oneself without seeking outside help first. This would help in keeping the communication channels open and in retaining the client. In all these attempts, proper records should be kept so that it can be shown as proof if it goes to dispute resolution stage. Previous experience in handling bad debts and awareness of the provisions of Fair Debt Collection Practices Act (FDCPA) would help in quick recovery at least in a few cases.
If all the in house attempts fail to recover a debt, then it is time to contact the collection agencies. These agencies have experience in handling delinquent cases and the necessary facilities to take follow up action with the debtor. But it must be ensured that even the collection agencies follow the FDCPA scrupulously as otherwise they can land you in legal trouble. In all cases the necessary information should be passed on to the agencies so that they can judge each case and take appropriate action.
Both Joseph Kenny & Tristan Andrews are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Joseph Kenny has sinced written about articles on various topics from Credit Cards, Debt Consolidation and Credit Cards. Joe Kenny writes for Rebuild, offering , or for UK residents. Joseph Kenny's top article generates over 550000 views. to your Favourites.
Tristan Andrews has sinced written about articles on various topics from Pets, Education and Collection Agencies. Tristan Andrews writes useful articles about . Discover and explore the world of debt collections. Find out how using. Tristan Andrews's top article generates over 673000 views. to your Favourites.