Collectors Need To Start With Their Own Budget

The focus of collector training normally involves specifics about the Fair Debt Collection Practices Act, guidelines on how to negotiate a payment and tips on overcoming objections. Collectors are encouraged to build relationships with customers by showing genuine concern about the debtor’s financial situation and understanding the events that led to the financial setback. In many cases, the debtor has existed with a "financial juggling act" and truly does not understand where his/her money is spent. The collector then takes on the role similar to a personal financial advisor. Many collectors do not understand their own personal finances and few have created a budget, reconciled last month’s bank statement or established a savings plan for emergency situations. You may want to consider adding a personal financial component to your collector-training program.

Where Money is Spent

Have you ever taken $20 out of an ATM and reached in your wallet the next day only to find that you spent the money, without any recollection of how you spent the money?

The first step to understanding personal finances is to be aware of where your money is spent. One exercise that may help collectors identify where money is spent is to ask the collectors to get a receipt or billed statement for every purchase/payment, including small goods such as a soft drink at the drive thru for a specific period of time (one week, duration of training program, etc.). It is helpful if the collectors have an envelope or receipt log with them at all times so that they remember to record the purchase or put the receipt in the envelope. At the end of the specified time period, have the collectors place the receipts in categories and total the expenses. Some categories that you may want to consider include:

• Housing (mortgage, rent, insurance, cleaning supplies, etc.)
• Transportation (car payment, parking, insurance, gas, public transportation)
• Food (grocery store, drive thru, restaurants, etc.)
• Health/Medical (insurance, office visits, drugs, etc.)
• Personal (clothing, child care, gifts, etc.)
• Loans (credit card, line of credit, student loans, etc.)
• Entertainment (movies, hobbies, etc.)
• Savings
• Other

Because of the sensitivity of the information, it is important to provide an area where the collectors may work in privacy or allow them to complete the exercise at home. In many cases, the collectors will be surprised at where their money is spent and identify areas that are not necessary expenses.

Planning

For many consumers, credit card debt has become a monthly expense without the consciousness of the total outstanding debt. A successful month is defined as having enough income to cover monthly expenses. Difficulty arises when something unexpected occurs, such as an increase in minimum monthly payments. It is beneficial to understand how expenses have been paid in the past and the mind-set for priorities in spending and paying bills. Some of the topics that you may want the collectors to consider follow.

Bonuses
It is a nice surprise when extra money is received, such as a bonus or gift. The money may come in handy to pay-off some existing debt or purchase a luxury item. The problem arises when you depend on the bonus as part of your income. A bonus is not an ordinary part of your salary and you cannot depend on receiving the money on an on-going basis. Your monthly budget needs to be based on your normal take-home pay.

Large Purchases
How do you plan for large purchases, such as appliances, carpet, car, etc.? For example, if you noticed that your carpet needed to be replaced, do you

• Get the money from a savings account?
• Change your current spending (cut down on luxury items) and saving (increase amount saved) pattern to accumulate the amount needed to pay for the carpet?
• Charge it on a credit card?
• Write a check and let the checking account go into overdraft protection?
• Get a home equity loan or borrow from some other source?
• Look for a store that offers no down payment and twelve months same as cash (and hope that you are able to pay off the account balance within the terms)?

Emergency Purchases
How do you plan for emergency situations, such as a car repair or travel expenses to visit a friend or relative in need? For example, if your car needed a new transmission, would you

• Get the money from a savings account?
• Not pay some bills and use that money to pay for the car?
• Charge the expense or borrow money from some other source?

Credit Cards
Do you have balances that revolve on credit cards? Why do you have credit card balances that revolve?

• I have enough money saved in a low-risk investment (savings account, money market) to pay the account balance but the interest paid in the account is higher than the rate on the credit cards;
• I wanted something and bought it without the money to pay for the purchase within 30 days;
• I used it for an emergency and was not able to pay it in 30 days
  • I stopped using the credit card until I was able to pay the account balance
  • I continued to make charges on the credit card;
• Used it to pay other bills (luxury or necessity)
• I stopped using the credit card until I was able to pay the account balance
• I continued to make charges on the credit card.

Have you been past due on a credit card payment within the last 12 months?

• Did the interest rate increase?
• How much were late fees?
• Did you continue to charge on the account?
• Did you borrow money to pay the account?
• Did you establish a payment plan?

What is the interest rate on your credit card?

Do you depend on credit cards to pay monthly expenses?

Savings/Checking

• Do you put a set amount of money in a savings account on a monthly basis?
• Do you participate in a long-term savings plan (IRA, company matching program, etc.)?
• Do you reconcile your bank statement on a monthly basis?
• Do you write down withdrawals and deposits in your checkbook or do you "just know" you have enough money?
• Do you utilize overdraft protection?

Creating a Budget

There are some good resources available on the Internet to help create a budget. One source for Visa Issuers is www.moneychoices.com. The web Site provides personal financial information on topics such as balancing your checkbook and creating a budget. You may even want to develop a generic budget on a spreadsheet and provide it to all of the collectors. Budgets are not defined as frugal. A budget helps you keep a record of your monthly expenses and payments and understand your outstanding balances. Some of the categories that you may want to have collectors capture on a budget include:

• Housing (mortgage, rent, insurance, cleaning supplies, etc.)
• Transportation (car payment, parking, insurance, gas, public transportation)
• Food (grocery store, drive thru, restaurants, etc.)
• Health/Medical (insurance, office visits, drugs, etc.)
• Personal (clothing, child care, gifts, etc.)
• Loans (credit card, line of credit, student loans, etc.)
• Entertainment (movies, hobbies, etc.)
• Savings
• Other

Benefit

Collectors that understand their own finances tend to identify with debtors as they struggle to make ends meet. Collectors can talk about their experience with understanding how their money was spent and how they were able to use the information to make better financial choices.

Bev Evancic has almost 20 years experience in collection and recovery. She has managed all phases of collection and recovery operations, including automated dialer units, bankruptcy and legal units, skip tracing units, internal collections, outside collection agency networks, and Consumer Credit Counseling.

As a Consultant for Resource Management Services, Inc., Bev has spearheaded collection and recovery best practices reviews for many top credit grantors. Her articles on dialer operations, agency management and bankruptcy best practices have been widely publicized.

Prior to joining Resource Management Services, Inc. in 1995, Bev managed the Recovery Department for AT&T Universal Card Services where she reengineered the bankruptcy, probate, internal and litigation processes.