When to settle for less?

(Names changed)
In a recent conversation with Deanna, we were discussing when it's a good time to settle a debt. It turns out Deanna & her husband had a sum of medical debt which had been acquired over the past year. In the course of our discussion, Deanna asked when it was appropriate to let a debt go to collections in order to negotiate a settlement. We discussed their specific financial situation to find out where they were positioned in order to address the debt.

Deanna & her husband had amassed approximately $10,000 in medical debt. Outside their mortgage, their financials looked pretty normal with amounts of credit card debt, auto loans, student loans & various other typical financial line items popping into place. As we looked down the page, the couple listed about $14 - 15,000 in savings.

With the couple considering defaulting on the medical bills (which are usually due in full within 30 days of service) we began to discuss how collections & settlements tend to play out. For the most part, creditors and collectors will only settle a debt which they feel they are not likely to be paid. Almost all collectors will need some proof that you're not going to be able to repay the loan. Occasionally, bankruptcy is considered as a way out of the pressure of debt. Unfortunately, bankruptcy is usually not a good solution and is frequently taken prematurely or unnecessarily.

In Deanna's case, she & her husband clearly had the ability to pay for this out of savings. However, she expressed great concern over liquidating such a large amount of savings. We asked a few more questions pressing further to see what other options may be available to either rebuild savings or absorb some of the blow of the financial hit. Here are some of questions we offered to consider in order to develop other options:

On your current budget, how quickly could you rebuild your savings?
Do you have anything you could sell that could bring in enough cash to cover all or most of the medical expenses?
Would you be able to move down in car in order to reduce other debt and thus increase cashflow to rebuild savings faster?
Does your husband have a company car that may allow you to sell the other car?
Are there areas in your budget that you could tighten for a brief time that would allow you to rebuild your savings quicker?

Then we presented a situational thought... As we are followers of Christ, I feel it's best to offer thoughts under the lens of the golden rule: "Do to others as you would want them to do to you."

"Deanna, If you had loaned $10,000 to a friend or worked a the equivalent of $10,000 worth of time at your job and the person decided to not pay you. How would you feel if you found out they didn't pay you but still had $15,000 in savings?"

It is understandable how difficult it is to part with nearly 2/3 of one's savings. In today's economy, financial security seems to be a commodity which easily evaporates. As we look at our finances, it is clear that we must bring our creative resources and combine them with our sweat equity to create financial options which allow us to keep our dignity as well as honor our word. I believe Deanna and her husband are now better equipped to address their financial situation with other tools that may keep their savings more in tact and still allow them to pay the full medical bill.

The Big Banks

Wow! I can't tell you how often I've heard bad things about the big banks (Bank of America, Wells Fargo, Citi, etc). Why do the big banks treat their customers so crappy? I think it may have to do with the fact that they think you're just a number. In reality, you are... just a number to them. You're a bank account number, a social security number, a drivers license number... you're just a number in their system.

My dad once told me about being able to walk into a bank and being greeted by name by the local tellers. Well, partially that was a product of small-town USA! But, there is some truth to having a place where "everyone knows your name" because it was a goode name (pun intended). This is why I would recommend most folks use a local credit union or community bank to do most, if not all, of their banking. Most of these smaller establishments have the ability to work with their brains & hearts where policy & procedures bar a big-box bank from moving.

Not to mention, many of the smaller banks have made less risky loans in the recent past as the capital is less available to them to guarantee such loans. Smaller banks are often more capable of working to the benefit of their customers as many of these banks are actually OWNED BY their customers. The bank president & tellers are all sitting in church with their customers on Sunday... this keeps them in check as they're more responsible for how their business is run.

Also, many of the big-box banks like Bank of America, Wells & Citi are nazis in their collection department. Their collections folks are frequently using intimidation techniques & bullying those in financial hardship. Their collections departments break federal law on a daily basis.

I actually saw a facebook status post from a pastor friend of mine that mentioned that Wells Fargo was being difficult to work with. I don't know exactly what he was talking about, but I will say that it doesn't surprise me.

Word to the wise, pastor: don't do business with them. I'd move EVERY dime I have away from them... I'd move the church's money, too!