WHAT HAPPENS IF I DON T PAY

LESSON 7 WHAT HAPPENS IF I DON T PAY THE LESSON IN A NUTSHELL Not paying your bills has consequences. Even when you re late, pay as soon as you can. Overview...2 Activity #1: You ve Been Pre-Approved!... 4 You ve Been Pre-Approved! (worksheet)...6 Activity #2: Paying Your Bills Decision Tree...7 What Happens if I Don t Pay? (infographic)...8 Activity #3: The Cost of Bad Credit...9 Why it Matters: Situations...10 Why it Matters: Answer Key...11 Activity #4: Debt Collector Role Play...12 Debt Collector Role Play (script)...14 Activity #5: How Much Do You Owe?...16 My Debts (worksheet)...17 Activity #6: Credit Check-Up...18 Credit Check-Up (worksheet)...19 Activity #7: Wrap-Up and Evaluation...20 Lesson 7 Evaluation...21 Resources... 22 LESSON 7 WHAT HAPPENS IF I DON T PAY 7-1

OVERVIEW Objectives Participants will: Recognize signals that their amount of debt is becoming unmanageable. Know the actions that lenders may take against them if they don t pay, including debt collection practices. Know the costs of not paying their bills. Know appropriate actions to take when they cannot pay their bills. Attempt to work out a manageable repayment plan based on their spending plan. Know how much they owe and the relevant details of their debts. Evaluate their use of credit. Trainer s Checklist Review the instructions, handouts, and other materials for each activity. The total estimated time for this lesson is 65 minutes. Choose which activities you will use to fit the time you have. For 30 minutes, use the activities marked with a in the first column of the Lesson Guide. For 60 minutes, add the activities marked with a. Decide whether to use the Bonus activity marked with. Copy Lesson 7 worksheets and handouts for each participant. If you have someone do the copying for you, give these instructions to your helper. Handouts should be copied single-sided, unless otherwise noted. You ve Been Pre-Approved! What Happens if I Don t Pay? My Debts Credit Check-Up Evaluation Copy and prepare other materials from the curriculum. If you have someone prepare these materials for you, give these instructions to your helper. Debt Collector Role Play, 2 copies Get items from the Resource Box. Why it Matters Cut apart the statements to make 11 slips of paper. Clip them in a stack, or place in a box or envelope that you can pass around. * Provide or prepare additional materials: A pen or pencil for each participant * Use the masters to make more, as needed. 7-2 ALL MY MONEY change for the better

LESSON GUIDE 30/60 min. Activity Objective Participants will: Method Curriculum Materials Other Materials Time You ve Been Pre-Approved! Recognize signals that their amount of debt is becoming unmanageable. Group discussion You ve Been Pre-Approved worksheet 10 min. Paying Your Bills Decision Tree Know the actions that lenders may take against them if they don t pay, including debt collection practices. Group discussion What Happens if I Don t Pay? infographic 10 min. The Cost of Bad Credit Know the costs of not paying their bills. Group discussion Why it Matters situations 10 min. Debt Collector Role Play Know appropriate actions to take when they cannot pay their bills. Attempt to work out a manageable repayment plan based on their spending plan. Role play Group discussion Debt Collector Role Play script, 2 copies 20 min. How Much Do You Owe? Know how much they owe and the relevant details of their debts. Homework My Debts worksheet 5 min. Credit Check-Up Evaluate their use of credit. Group discussion OR homework Credit Check-Up worksheet 5 min. Wrap-up and Evaluation Group discussion; Individual activity Evaluation handout 5 min. Total: 65 min. Activities for a 30-minute lesson Add these activities for a 60-minute lesson Bonus Activity LESSON 7 WHAT HAPPENS IF I DON T PAY 7-3

ACTIVITY #1 You ve Been Pre-Approved! OBJECTIVES Participants will: Recognize signals that their amount of debt is becoming unmanageable. MATERIALS You ve Been Pre-Approved handout ESTIMATED TIME FOR ACTIVITY 10 minutes ACTIVITY INTRODUCTION They seem to come in the mail at the perfect time, when budgets are stretched to the max: pre-approved offers for credit cards, vacation loans, and money to use for school supplies or for the holidays. Or, maybe you re in line at the department store with a basket full of items when the clerk offers you a substantial savings off your purchase today if you get the store credit card. It is so tempting to create just a little wiggle room in your spending plan by accepting these offers but should you? If you were to accept the additional credit/loan, would you be able to re-pay, comfortably, the money (plus possible interest), without adding financial burden to an already uncomfortable money situation? FACILITATOR INSTRUCTIONS Point out that some participants may not be using any kind of credit. Others may be managing their debt well. But others may have more debt than they can handle. It s so easy to take on more debt when you hear the magic words, You ve been pre-approved! This activity will help participants decide whether they might be using too much credit. As you distribute the worksheets, read the instructions at the top of the page. Allow participants some time to answer the questions and think about whether they need to take better control of their finances. Or, read the questions to the group. If participants don t feel that this is relevant for them right now, suggest that it may be a good reference for the future, in case they are tempted to turn to credit offers for help. 7-4 ALL MY MONEY change for the better

Remind participants that using credit responsibly will help build a good credit history, which can enable them to get a mortgage or auto loan. Also, credit can help in times of emergency need. However, unless credit can be paid off at the end of the month, it should not be used to pay for everyday living expenses, like food and gas, or for entertainment such as movies, because these items can end up costing two or three times the original price with additional interest charges. TEACHING TIP It s hard not to be tempted by prescreened credit offers. If participants would rather not receive these offers, they can opt out from most of them by calling 1-888-5-OPT-OUT or going to OptOutPrescreen.com. LESSON 7 WHAT HAPPENS IF I DON T PAY 7-5

You ve Been Pre-Approved! When money is tight, credit offers may look like the perfect solution. How do you know if you can handle more credit payments? Answer the following questions based on whether the situation happens often, sometimes or never. 1 After paying bills, I have no money to spend on extras, like watching a movie or ordering food. 2 My bank account is at or below $0. 3 I pay bills late because I do not have enough money to cover them. 4 I have no emergency fund. 5 I do not have enough savings to get through a major setback, such as a pay cut, car repair or an emergency trip to visit family. 6 My credit cards are maxed out. 7 I pay just the minimum payment due on credit cards. 8 I use one loan or credit card to pay off another loan or monthly bills. 9 I have taken out a payday or auto title loan. 10 I receive late notices or calls from creditors trying to collect payments. 11 I have been turned down for new credit. 12 I rely on overtime or income from a second job to buy groceries or cover other daily expenses. Often Sometimes Never If you answered often or sometimes to any of these questions, avoid getting more credit until your finances improve. University of Illinois U.S. Department of Agriculture Local Extension Councils Cooperating. University of Illinois Extension provides equal opportunities in programs and employment. 7-6 ALL MY MONEY change for the better

ACTIVITY #2 Paying Your Bills Decision Tree OBJECTIVE Participants will: Know the actions that lenders may take against them if they don t pay, including debt collection practices. MATERIALS What Happens if I Don t Pay? handout ESTIMATED TIME FOR ACTIVITY 10 minutes ACTIVITY INTRODUCTION Sometimes the unexpected in life happens. You may have lost a job, a family member has died, or there isn t enough income coming in each month to pay bills. Without emergency savings, we may have to make tough choices about which bills to pay and which bills not to pay. Unpaid debts can eventually result in wage garnishment, where money is taken from your paycheck until the debt is repaid. Except for taxes or other debts owed to the federal government, most lenders must go to court in order to garnish wages. Wage assignments are different. You might have agreed to a wage assignment when you borrowed money. If you don t pay, the wage assignment gives the creditor permission to take money from your paycheck without going to court. FACILITATOR INSTRUCTIONS Tell participants that they re going to explore what can happen if a bill isn t paid. Distribute the What Happens if I Don t Pay? handout to each participant. The decision tree starts with a bill that is late and shows how the lender s actions become increasingly more severe the longer the bill remains unpaid. After everyone has reviewed the decision tree, ask the following questions: Were there any surprises on the decision tree? Why do you think people ignore bill collectors and judgments? What is one way to prevent bills from going into collections? What steps can you take to remind yourself a bill is going to be due next week? TEACHING TIP If your participants are not strong readers, go through the decision tree together as a group. LESSON 7 WHAT HAPPENS IF I DON T PAY 7-7

What Happens if I Don t Pay? Start Here Bill is late and did not get paid Pay the bill/debt off with late fee If you don t pay: negative information can go on your credit report If the debt isn t paid after 180 days then the debt then goes to the debt collection agency Pay the debt + interest or fees from the collection agency Company threatens a lawsuit for debt on debts over $1,000+ You win court case You lose court case & a judgment is issued against you Collector files a request for garnishment Garnishment starts University of Illinois U.S. Department of Agriculture Local Extension Councils Cooperating. University of Illinois Extension provides equal opportunities in programs and employment. 7-8 ALL MY MONEY change for the better

ACTIVITY #3 The Cost of Bad Credit OBJECTIVE Participants will: Know the costs of not paying their bills. MATERIALS Why it Matters situations. Cut apart the statements. Clip them in a stack, or place in a box or envelope that you can pass around. ESTIMATED TIME FOR ACTIVITY 10 minutes FACILITATOR INSTRUCTIONS Introduce the activity by saying something like this: In the previous activity, we saw what can happen when you don t pay a bill. But the costs and problems may not stop there. When those late payments, collections and court judgments show up on your credit report, it can affect other things in your life, too. Ask participants to each draw one of the Why it Matters slips. Tell them they can read the situation to the group, or pass it to you to read. After each situation is read, ask one or two participants what cost or problem someone might have in that situation if they had bad credit. Why It Matters: Answer Key provides some possible answers for each situation. Explain that having negative information on your credit report affects all these situations, because the phone and utility companies, landlord, credit card companies and others will check your credit report or credit score before making a decision. That s why paying your bills on time is so important. Alternate method Instead of asking participants to draw slips, tell the group that you will call out a number of things that a person might do. For each one, you want them to say what might happen if that person has negative information on their credit history, such as late payments, collections, and wage garnishments. TEACHING TIP Keep the activity moving and keep the tone light. Unless a question comes up that you think is important to address, use these questions to raise awareness of the financial and non-financial costs of bad credit without spending a lot of time on any single situation. TEACHING TIP Some participants may suggest that a person could add a consumer statement to a credit report to explain, for example, that the payments were late due to being laid off. That probably won t help, unless a lender (such as a mortgage lender) reads all the details of the credit history instead of just looking at the credit score. Even then, a consumer statement may not help unless it gives a reason why the consumer disputes responsibility for the debt. LESSON 7 WHAT HAPPENS IF I DON T PAY 7-9

Why It Matters: SITUATIONS 1 You try to get a new phone. 2 You apply for a credit card. 3 You apply for a new job. 4 You try to open a checking account. 5 You apply for a mortgage. 6 You want to move to a new apartment. 7 You move and need to get gas and electric turned on. 8 You get your car insurance bill. 9 You enlist in the military. 10 You file your income taxes. 11 You charge new purchases on your credit card. University of Illinois U.S. Department of Agriculture Local Extension Councils Cooperating. University of Illinois Extension provides equal opportunities in programs and employment. 7-10 ALL MY MONEY change for the better

Why It Matters: ANSWER KEY 1 You try to get a new phone. You may not be able to get a phone with a standard pay-as-you-go contract. You may need to get a prepaid phone instead. 2 You apply for a credit card. You could be turned down, or be offered a card with a high interest rate and/or a low credit limit. 3 You apply for a new job. Depending on the state, the employer could check your credit history and use that information to decide whether to hire you. (This is true for only some jobs in Illinois.) 4 You try to open a checking account. Some banks and credit unions check credit histories. They could refuse to open an account because of your credit history. 5 You apply for a mortgage. You could be denied, or you might only be able to get a mortgage with a high interest rate. 6 You want to move to a new apartment. 7 You move and need to get gas and electric turned on. The landlord might ask for a larger security deposit, or refuse to rent to you. Utility companies will ask for larger security deposits. 8 You get your car insurance bill. Because many insurance companies use credit history as one of the factors in pricing an insurance policy, you could see a big increase in the cost when your insurance policy renews. 9 You enlist in the military. Your career advancement may be limited, because your credit history may prevent you from getting security clearance. 10 You file your income taxes. If you defaulted on your student loan, your refund could be taken to pay it. 11 You charge new purchases on your credit card. A credit card company can charge a higher interest rate on new purchases if it gives 45 days notice. It usually can t increase the interest rate on an existing balance unless you are 60 days late on that card. University of Illinois U.S. Department of Agriculture Local Extension Councils Cooperating. University of Illinois Extension provides equal opportunities in programs and employment. LESSON 7 WHAT HAPPENS IF I DON T PAY 7-11

ACTIVITY #4 Debt Collector Role Play OBJECTIVES Participants will: Know appropriate actions to take when they cannot pay their bills. Attempt to work out a manageable repayment plan based on their spending plan. MATERIALS Debt Collector Role Play, 2 copies ESTIMATED TIME FOR ACTIVITY 20 minutes ACTIVITY INTRODUCTION In this role-play exercise, we will act out a conversation between a debt collector and a debtor. It s important to know how much you can afford before you call to set up a payment plan. If the debt collector agrees to a payment plan, you have to be able to make the payments the collector may not be willing to change the terms once the plan is in place. Debt collectors must notify you in writing about the collection. You may receive a phone call before the letter arrives. Make sure they have your correct address, so that you get the letter. Check the debt information in the letter to verify that the debt belongs to you. If it isn t your debt, you have 30 days from the date of the letter to dispute the debt in writing. FACILITATOR INSTRUCTIONS Ask for two participants to role-play a debt collector (Pat) and a caller with debt (Alex), using the script provided. At the end, ask all the participants the following questions. Sample answers are included for some of the questions. What did you learn during the role play that you didn t know before? Participant response Is this the typical encounter you ve had with a debt collector? If not, how was it different? Participant response 7-12 ALL MY MONEY change for the better

What should you do when you re unable to make a payment on a debt that you owe? What are the first steps? Think about the consequences. If it s a secured debt, what could you lose? What options do you have? Make a realistic plan before calling the lender, but be sure you call. What could Alex have done before this situation went to collections? Open and read all your bills and statements. Communicate with the lender/provider if you have questions or are unable to pay the bill in full. Ask what your options are if you cannot pay your bill. What did Alex do well? What could Alex have done differently? Alex treated the debt collector with respect. Alex had a plan before calling and knew how she could pay toward the debt. Alex could have paid the bill before it went to collections or worked out a payment plan with the hospital. Participant response is welcome as well. LESSON 7 WHAT HAPPENS IF I DON T PAY 7-13

Debt Collector Role Play Debt Collector: Thank you for calling Best Debt Collections, this is Pat, how can I help you? Caller: Hi Pat, I recently got a letter from your company and wanted to see what it was about. Debt Collector: From the number you re calling from, it looks like I am speaking with Alex Sanchez, is that correct? Caller: Yes, I am Alex. Debt Collector: Alex, I ll need to verify some information before we continue. I do have to let you know that this is an attempt to collect a debt, and any information will only be used for that purpose. I also have to let you know that the call will be recorded for quality assurance. OK Alex, for security purposes I need to verify the last four digits of your social security number. Caller: Sure, um, 2345. Debt Collector: Do you live at 678 Water Terrace Drive? Caller: Yes, that s correct. Debt Collector: Great, I see your account here, showing a debt from Sunshine Hospital with a balance of $450. Caller: Yes, I was at Sunshine Hospital, but I thought my insurance had taken care of that. Debt Collector: I m showing this balance is the remaining portion of your deductible for the year. Caller: OK, so I need to pay this off. Can we do a payment plan? University of Illinois U.S. Department of Agriculture Local Extension Councils Cooperating. University of Illinois Extension provides equal opportunities in programs and employment. 7-14 ALL MY MONEY change for the better

Debt Collector: We could start a payment plan, but I before I do that, you should know that the Fair Debt Collections Practices Act only allows 30 days for the debt to be paid before it goes onto your credit report. That means if this payment plan goes past 30 days, this debt will show up on your credit report. Do you understand? Caller: If I don t pay the entire balance within the next 30 days, then this will go on my credit report? Debt Collector: Yes, it will show up as a collection on your credit report. Caller: Well, I really need to do a payment plan. I can t pay it all right now. Debt Collector: OK, I will need to collect some information from you first before I can set up a payment plan. I ll need your gross income, rent or mortgage amount, and the amount of any other debts you may be paying. Caller gives the debt collector the information needed to set up the payment plan Debt Collector: Given the information you ve provided, I m showing that I can offer you a payment plan of $112.50 per month for four months. How does that sound? Caller: That seems kind of high, is there any way we could make the payment around $75 per month? Debt Collector: That would be a six-month payoff. Let me see what I can do for you. Can you hold for just a moment? Creditor puts the caller on hold. Debt Collector: I just spoke to my supervisor, and the longest amount of time I can give you is six months, so the $75 per month payment plan will work. In order to secure this payment plan, I need to set it up to come from your checking automatically. Caller: Is there a charge for that? Debt Collector: No, our company does not charge to set up a payment plan. Caller: OK, great. Debt Collector: In order for me to secure the payment plan, I need a payment of $75 today from your account, and then we can start the payments next month on the day you want the money drawn from your checking account. Caller: I had planned on paying some of it off today. I can do $75. I usually get paid on the 15th of each month, so let s set it up after the 15th for next month. Debt Collector: OK, great, then you ll have five additional payment of $75. The payments will be taken from your account on the 16th of each month. Caller gives the creditor the account information. Debt Collector: Alex, today s payment went through. I just want you to know if something happens where you can t make the $75 payment next month, please give us a call as soon as you know. We appreciate you taking the time to set up this payment plan. If you have any questions, feel free to give me a call. Again, my name is Pat. Thank you and have a great day. Caller: Thanks, bye! University of Illinois U.S. Department of Agriculture Local Extension Councils Cooperating. University of Illinois Extension provides equal opportunities in programs and employment. LESSON 7 WHAT HAPPENS IF I DON T PAY 7-15

ACTIVITY #5 How Much Do You Owe? TEACHING TIP If participants are unsure about the interest rate they are paying, encourage them to review their statements (especially for credit cards) or the original credit agreement. Suggest they look for a box or item labeled APR or Annual Percentage Rate. OBJECTIVE Participants will: Know how much they owe and the relevant details of their debts. MATERIALS My Debts handout ESTIMATED TIME FOR ACTIVITY 5 minutes FACILITATOR INSTRUCTIONS Give each participant a copy of the handout My Debts. Ask them to complete the form at home, so that they know how much they owe, the total of their monthly payments, and other important information such as the interest rate and whether the debt is secured. If you taught Lesson 6, including the PowerPay Your Debt activity, point out that participants will have all the information they need to use PowerPay after they fill out this form. PowerPay will calculate the date that they can be debt-free. 7-16 ALL MY MONEY change for the better

My Debts Fill out the details about each of your debts. List all types of loans and credit cards. Make a note if the bill is past due, if it is a secured debt, or if you have set up a new payment plan with the lender. Date: Creditor Balance APR Monthly Payment Due Date Notes Total $ $ University of Illinois U.S. Department of Agriculture Local Extension Councils Cooperating. University of Illinois Extension provides equal opportunities in programs and employment. LESSON 7 WHAT HAPPENS IF I DON T PAY 7-17

ACTIVITY #6 Credit Check-Up OBJECTIVE Participants will: Evaluate their use of credit. BONUS ACTIVITY TEACHING TIP If participants don t know how much interest or fees they re paying on credit cards, suggest that they look at their credit card statement. If they manage their credit cards online, they may need to find an online PDF of the statement. MATERIALS Credit Check-Up worksheet ESTIMATED TIME FOR ACTIVITY 5 minutes FACILITATOR INSTRUCTIONS The Credit Check-Up worksheet is a good periodic measure for anyone who uses credit, whether or not they are experiencing credit problems. When they look at how credit payments may be keeping them from reaching other goals, even participants who are handling debt well may realize they need or want to make some changes. Distribute the worksheet. Read the instructions at the top of the page. Give participants some time to think about the questions and what they might do to take better control of their finances and reduce their debt. Point out that they may not have all the information they need to answer the questions right now. Encourage them to take the worksheet home and finish it there. Alternate method Rather than going through the worksheet in class, you can distribute it for participants to do as homework or to keep for future use. 7-18 ALL MY MONEY change for the better

Credit Check-Up How well are you handling your debt? Even if you seem to be doing OK, it s smart to do a credit check-up once in a while. Answer these questions. Then decide what you want to do about your debt. How much do you pay each month for loans, credit cards and other debt? How much did you pay in interest and fees in the last year? How long would it take to pay off your debt if you quit using credit today? (Don t count your mortgage.) Can you count on the same income each month? How secure is your job? Have you put off other goals, such as saving for college or retirement, because of your debt payments? What do you plan to do about your debt? DEBT University of Illinois U.S. Department of Agriculture Local Extension Councils Cooperating. University of Illinois Extension provides equal opportunities in programs and employment. LESSON 7 WHAT HAPPENS IF I DON T PAY 7-19

ACTIVITY #7 Wrap-Up and Evaluation OBJECTIVE Participants will: Reflect and evaluate the lesson. MATERIALS Lesson 7 Evaluation ESTIMATED TIME FOR ACTIVITY 5 minutes FACILITATOR INSTRUCTIONS Help participants reflect on what they ve learned or what they plan to do as a result of this lesson. Lead a 2- to 3-minute wrap-up discussion by posing one of the following questions (or one of your own). Make sure the question is open-ended (cannot be answered with just a yes or no ). The question and your response should be non-judgmental. For example, ask, How would tracking expenses help you? instead of, Are you going to track your expenses? This wrap-up can also give you valuable feedback, especially from participants who may not provide much information on the written evaluation. Examples of questions you might ask: Which activity did you like the best and why? Which key idea would you like to share with a friend? What was most surprising or interesting that you learned today? What do you plan to do when you get home as a result of today s lesson? After the discussion, distribute Lesson 7 Evaluation. Tell participants that you appreciate their feedback. 7-20 ALL MY MONEY change for the better

Lesson 7 Evaluation What Happens if I Don t Pay After taking this lesson, I plan to: Contact creditors if I can t make a payment. No Yes Ask myself if I have too much credit before applying for more. No Yes Rate yourself. Before class, I knew what would happen if I didn t pay my bills on time. Now, I know what will happen if I don t pay my bills on time. Overall, how much did I learn from this session? Rate the class. The information was presented in a positive way. The teacher knew the topic well. The activities were useful to me. What was the most useful thing I learned today? University of Illinois at Urbana-Champaign College of Agricultural, Consumer and Environmental Sciences United States Department of Agriculture Local Extension Councils Cooperating University of Illinois Extension provides equal opportunities in programs and employment. LESSON 7 WHAT HAPPENS IF I DON T PAY 7-21

Lesson 7 Resources What Happens if I Don t Pay Consumer Information: Debt Collection, Federal Trade Commission http://www.consumer.ftc.gov/articles/0149-debt-collection The Federal Trade Commission (FTC) enforces the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair or deceptive practices to collect money from people. This page highlights many of the frequently asked questions about debt collections. In addition, you can download the article Debt Collection for free. Managing Your Debt: Deciding Which Bills to Pay First, Getting Through Tough Financial Times, University of Illinois Extension http://web.extension.illinois.edu/toughtimes/deciding_which_bills.cfm The questions in this article can help you set priorities and make a plan when having to make choices about which bills to pay first. Legal Services Corporation http://www.lsc.gov Contact your local Legal Aid Office for information about debt collection and forgiveness in your community. Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act s Title 3 (CCPA), U.S. Department of Labor http://www.dol.gov/whd/regs/compliance/whdfs30.htm This fact sheet provides useful details about how garnishments work, including how much of a person s income can be garnished. It also explains that voluntary wage assignments are not garnishments. 7-22 ALL MY MONEY change for the better