Advice from Nashville's Financial Guru Dave Ramsey
Dave Says
By Dave Ramsey
Author of Financial Peace and The Total Money Makeover
1/24/2005
"Being sued by Discover – Help!"
Dear Dave,
I was notified yesterday that I’m being sued by Discover card through a local attorney. I owe them $10,000 plus $2,800 in legal fees. I’ve been sending them about $50 a month for the last six to nine months, but the minimum payment is about $150.
I haven’t been able to afford the payments. Last year I made about $50,000 – though this year looks like it will be better, due to a job change. Our first mortgage payment is $900 a month and the second is $520. I also owe about $9,000 on cars and the monthly payment is around $200. In addition, I’ve got another Discover card, an American Express card and some medical bills. My credit cards, car loans and medical all add up to about $60,000 in debt.
I’m not sure what to do.
Scott in Phoenix, AZ
Dear Scott,
While it’s very rare for a credit card company to sue someone for a balance less than $5,000, they sometimes will when the balance is higher. However, it doesn’t usually happen for a year to a year and a half after someone becomes delinquent.
This is a problem for you. You’ve got a pretty heavy house payment, considering your income. However, it sounds like you should be able to make these payments if you get on a bare-bones budget. I think you probably haven’t cut back your lifestyle yet – entertainment, vacations, etc. – and you’re not living on a written budget. I’ve seen people cut way back and make it through situations like this.
First, we have to figure out what to do about this Discover account, because they’ve sued you already. And they’ve gotten a local attorney, which is not good for you. I recommend you call their attorney – today! You’ll probably end up talking to a paralegal, but that’s alright. This person will probably be authorized to cut some kind of a payment plan and do what is called an “agreed order”. That means you’ve lost the lawsuit, which you will lose anyway because you owe the money, and you are agreeing to pay them so much money a month. In order to pull this off, that agreed payment is going to be a substantial amount – like $500 a month. Also, let them know your financial situation and that you want to honor this debt.
If you don’t call them and work out a repayment plan, they will go ahead and sue you, you will lose and the judge will garnishee your wages if you don’t pay the amount due. So, you might as well cut a payment plan with them and then make them a top priority in your budget to make sure this gets cleared up.
I’m not an attorney, so I recommend you consult an attorney on these legal issues. I also strongly recommend you get a second job and get on a budget immediately. When you talk with the lawyer’s office, let them know you’ve spoken with a financial counselor and you’re getting on a budget. Then make it happen! Get on a bare-bones, nothing-but-basics budget. Get this mess cleaned up and then get rid of all of your debt. Life is too short for you to live like you’ve been living. That kind of stress can destroy your life and relationships.
-Dave
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