Four Red Flags That Suggest a Creditor Will Lead You Down the Road to More Debt
Debt can be a tool you leverage or a major financial pain. Look for these signs that a creditor will lead you into more debt.
As any property investor knows, you can use debt to help you to build a portfolio. The idea is to borrow money and invest in an asset that will generate an income later on.
That’s good debt.
Unfortunately, things can go wrong.
You may end up struggling to pay your debts, which is a situation many creditors will try to use against you.
This article gets into the shady practices some creditors use when chasing debt payments. But first, there’s something you need to know about protection…
Is There a Way to Protect Your Property?
A lot of investors use trusts. These are great when it comes to streamlining income, and they offer several tax benefits.
However, they don’t offer the asset protection you need when you’re struggling with debt payments.
The law can look at the beneficiary of the trust and attack them if they’re struggling with debt.
Ownership is of no benefit at all when it comes to protecting an asset.
Think about how home loans get structured. A secured creditor, usually the bank, gets registered on the title. Nobody can undo that first mortgage. You might get a second mortgage on the property and do all sorts of other things. But if something goes wrong, it’s the bank that gets paid first.
They put their foot on the asset and get paid what they’re owed. They even take priority over trustees.
Your goal when protecting an asset is to put yourself in the position of a secured creditor.
This is something DG Institute can help you with. You need guidance from an expert who understands how the system works and what you can do to stay on top.
But let’s say you haven’t built that protection for yourself. And now you have creditors chasing you because you’re struggling to pay your debts.
These are the red flags that suggest a creditor will just lead you to more debt.
Red Flag #1 – They’re Vague When You Ask Who They Are
According to the Australian Competition & Consumer Commission (ACCC), creditors have obligations to meet. They must confirm that you’re the debtor before they begin chasing payments.
However, the ACCC also points out that the person making contact may not say you’re the debtor. You need to confirm it for them.
This means that many creditors will not disclose their names when calling you. As the ACCC puts it:
“If you consider it necessary to divulge your identity as a debt collector before being sure that you are dealing with the debtor (for example, if requested by the person you are dealing with), then you may do so if that would not have the effect of divulging that the debtor has a debt. Particular care should be taken when speaking to a person at a debtor’s workplace.”
So if the caller won’t divulge their name or reason for calling, they’re likely a creditor.
For example, you may get a call about your credit card debt. The caller may tell you which company they’re calling on behalf of, but won’t tell you why. That’s a sign they’re calling about a debt.
Do not confirm that you’re the debtor. Simply say you don’t have time to talk, put the phone down, and look into alternative action.
Red Flag #2 – They Call After You Tell Them to Stop
According to the Consumer Action Law Centre:
“A creditor or debt collector must not contact you about a debt if you tell them in writing not to contact you about the debt.”
If they keep calling, they’re not just going to lead you to more debt. They’re breaking the law.
However, it’s important to note that sending the letter does not prevent them from taking legal action against you.
Red Flag #3 – They Try to Intimidate You
Some creditors get aggressive when calling you, likely in an attempt to make you admit you’re the debtor.
Don’t fall for it. This is another shady banned tactic.
For example, a creditor may threaten to seize an asset they have no right to if they don’t receive payment. This is an intimidation tactic they’re not legally allowed to use.
Again, cut contact if the creditor attempts to use forceful or derogatory language.
Red Flag #4 – They Threaten to Tell Others About Your Debt
Many creditors prey on the perception that debt is a shameful thing. It’s this perception that leads to people falling into more debt in the first place. We don’t want to talk about it because there’s a stigma attached to it.
The topic is almost taboo.
A creditor may claim that they’ll tell others, such as family members or potential employers, about your debt. This is an illegal practice in most states. As Consumer Affairs Victoria says:
“Certain debt collection practices are banned in Victoria. These include…”
“…disclosing or threatening to disclose debt information, without the debtor’s consent, to any person who does not have a legitimate interest in the information”
Understand that they have no legal right to expose your situation to others. You have a right to privacy in this situation that the creditor must respect.
Avoid Creating More Debt
The reason understanding these practices is so important is that falling for them allows creditors to get their claws into you.
This means they can throw you even further into the debt spiral.
Be wary whenever you’re communicating with a creditor. Don’t try to resolve the situation alone, as these tactics could lead you down the road to more debt.
Instead, work with a debt specialist who can negotiate on your behalf to lower your debts.
If you’re interested in learning more about property investment and profiting from distressed property, join the upcoming Real Estate Rescue webinar with Dominique Grubisa.
Lawyer, Asset Protection Specialist and Property Educator
Dominique Grubisa is a practising legal practitioner with over 22 years of legal and commercial experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author. You may contact Dominique at email@example.com
This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.