When Gerry Rogers unexpectedly was laid off from his job in the engineering department in St. Lucie County in 2008, he quickly went into survival mode with his wife and three school-aged children.

Knowing the family couldn’t afford their mortgage, Rogers tried negotiating a modification with his home’s lender, reined in spending, called creditors about his financial hardship and prioritizing bills.

Rogers isn’t alone in his financial struggles.

Treasure Coast residents affected by job losses or financial hardship are making tough choices when it comes to how they allocate their money. Some may be wondering how they should prioritize their bills and which ones will eventually be sent to collections.

Catherine Williams, vice president of financial literacy for Money Management International, a nonprofit debt counseling agency, said keeping current on shelter, utilities and children’s health insurance payments should always be a family’s first priority when faced with a financial hardship or job loss.

“I know it seems counter-intuitive. You want to pay on your credit card bills because you don’t want a bad mark from the credit bureaus,” Williams said. “But would you rather have great credit and no lights? You have to look at survival.”

Experts say credit cards should not be paid during a financial hardship. And don’t be afraid of creditors threatening bad marks from credit bureaus or lower credit scores. You can always rebuild credit after you become gainfully employed. Plus, the financial crisis has affected thousands of households nationwide, meaning imperfect credit reports and lower credit scores don’t carry the same stigma as in past years.

With only his wife’s income, Rogers figured the couple’s good credit would enable them to work with creditors by postponing some bills and getting a modification on the home purchased for $208,0000 in 2003.

But Rogers said after being honest with creditors about his unemployment checks, credit card payment collectors and other lenders started pressuring him for payments. His mortgage holder, Accredited Homes, wouldn’t give the family a modification although the home was being appraised at $115,000. The family soon moved into a cheaper, smaller apartment because they couldn’t make the mortgage.

The home still sits empty in foreclosure. Rogers said he didn’t live in the home without paying the mortgage because it wasn’t the “honest” thing to do.

“Since my wife still had a job, she made $1,000 too much to qualify for food stamps, so we had to reduce the amount of food we bought and ate,” said Rogers, 45. “Luckily, the schools provided my kids with at least a free lunch. I started to eat only one meal a day so at least my kids would have enough food to eat.”

Now, with his unemployment running out, the family is being forced to move into a low-income housing community. He’s still debating on how he’s going to keep paying on the family’s car and phone – his lifeline to job interviews.

“I am lucky to have the wife that I have. She’s a trooper, a real hardworking person,” said Rogers, who has applied for hundreds of jobs, receiving only five interviews. “Any other person probably would have walked away by now.”

Mike Sullivan, director of education at Take Charge America, a credit-counseling firm, said other than credit cards, the last priority for anyone facing a hardship should be paying student loans and a cell or phone bill.

“I would say give up that $79 phone bill and buy a pre-paid phone and use it for emergency job calls and your resume contact,” Sullivan said. “Student loans, well, they take a while before becoming a serious situation … and you can always defer them until the hardship is over.”

Jessica Cecere, president of Consumer Credit Counseling Services of Palm Beach and the Treasure Coast, agreed, adding her thoughts about credit taking a hit because of financial hardships.

“I compare it to having a bad reputation,” said Cecere. “Would you lend money to someone who didn’t pay you back three separate times? Now, let’s say the last time that person owed you money, they paid you back with interest. You might consider lending to them again, right? That’s really how it works in the world of credit.”

HOW DELINQUENT BILLS AFFECT CREDIT

Financial experts say credit cards should not be paid during a financial hardship.

Don’t be afraid of creditors threatening bad marks from credit bureaus or lowering credit scores.

You can always rebuild credit after you become gainfully employed. Plus, the financial crisis has affected thousands of households nationwide, meaning imperfect credit reports and lower credit scores don’t carry the same stigma as in past years.

CAR REPOSSESSION

Process: Once you are in default, a lender can repossess your car at any time, without notice, and come onto your property to do so. When seizing the vehicle, the creditor may not commit a “breach of the peace,” which means using physical force, threats of force or removing your car from a closed garage without your permission.

Length of time to complete: Usually 60 to 90 days

Result: The lender can insist you pay off the entire loan balance in order to get the repossessed vehicle back. If no action on the car is taken by the owner, the lender can sell the vehicle at auction.

Effect on credit: Damaging depending on whether it was a voluntary or involuntary repossession. Can stay on a credit for seven years, depending on how much was owed and if the lender reports you still have a balance on the car. Most lenders will see you as a risk if you plan to buy another vehicle, causing car loan applications to be denied. If a lender does approve your car loan, be prepared for higher, possibly double-digit interest rates.

FORECLOSURE

Process: The lender files a lawsuit against a homeowner who defaults on a mortgage. Banks normally obtain a summary judgment foreclosing on the house, which results in a public auction by the county’s clerk of court. In some cases, defenses are available that can lead to the need for a trial.

Length of time to complete: About six to nine months

Result: The sale of the house by the courts. The sale can be perceived as income by the IRS if the bank issues a 1099 for the difference between the home value and the outstanding debt. This needs to be negotiated with the lender.

Effect on credit: Very damaging for not making monthly mortgage payment. The mark stays on a credit report for 10 years.

CREDIT CARD DEFAULT

Process: With the Credit Card Act of 2009, an interest rate increase can be applied to existing balances only if the cardholder is delinquent. The new rules also don’t cap interest rates on a 60-day delinquency. The increased rate can triple your existing rate and additional late fees can be applied. After six months of non-payment the account is likely shifted to a charge-off status.

Length of time to complete: Depending on the creditor, late fees and interest rate hikes can occur just days after the card’s due date.

Result: Obtaining other types of revolving credit may be difficult. Other credit lines may increase their interest rates once your default is reported to credit bureaus as long as they give you 45 days’ notice before the contract changes take effect. Expect higher interest rates on future credit lines. Be prepared for double-digit interest rates if you are approved for revolving credit elsewhere.

Effect on credit: Credit card non-payments could remain on a credit report for seven years or until the statute of limitations runs out.

STUDENT LOAN DEFAULT

Process: Depending on the lender, late fees can start to accrue after payment isn’t received on the due date.

Length of time to complete: Depends on the loan type but most accounts will be considered delinquent after 30 to 60 days.

Result: Future loans or credit may be difficult to obtain. Expect higher interest rates on future loans or credit elsewhere. Other creditors may see you as a risk and increase your current rates on other credit, as long as they give you 45 days’ notice before the contract changes take effect.

Effect on credit: Damaging as it could remain on a credit report until the balance is paid, or you begin to make monthly payments again.

NOT PAYING UTILITY BILLS

Process: Late fees can start to accrue after payment isn’t received on the due date.

Length of time to complete: Depending on the utility, the account may be considered delinquent after 30 days.

Result: Service may be shut off if non-payment is continued. The company you are dealing with and other utilities may require you to pay a large deposit to start or reinstate service.

Effect on credit If the debt is turned over to a collection agency, it can stay on your credit report for seven years or until the statute of limitations runs out.

NOT PAYING RENT

Process: Landlords usually consider rent late a week after the due date. Once a renter is two months’ late, unless a work-out is negotiated with the landlord, eviction may be imminent.

Length of time to complete: Usually 90 days

Result: The landlord must serve you, the tenant, a written notice allowing three days for you to pay the rent or move once rent is delinquent. If you do not pay rent or move, the landlord may begin action to evict you. After filing an eviction lawsuit with the county, the clerk of the county court will issue the local sheriff’s office notification that you will be evicted in 24 hours. The landlord cannot put you out unless he wins the eviction case in court.

Effect on credit: If the debt is turned over to a collection agency, it can stay on your credit report seven years or until the statute of limitations runs out. Future landlords and apartment complexes may not rent to you or require you to pay a large deposit and several months rent in advance before you can move into another unit. Your rent may also be higher than what is traditionally charged.

NOT PAYING CELL PHONE OR LANDLINE PHONE

Process: Late fees can start to accrue after payment isn’t received on the due date.

Length of time to complete: Depending on the phone company, or wireless carrier the account may be considered delinquent just days after the due date.

Result: The phone line or cell could unexpectedly be shut off after payment is not received.

Effect on credit: If the debt is turned over to a collection agency, it can stay on your credit report seven years or until the statute of limitations runs out. If you do apply for a landline or cell phone contract in the future, you may be required to pay a larger deposit.

This entry was posted on Sunday, February 21st, 2010 at 11:31 am and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.