In what is turning out to be the worst recession since the Great Depression, many Americans are struggling to pay their bills as companies continue to shed jobs and the economy continues to contract.

In this recession, costly expenses like medical bills are taking a backseat to daily expenses like water, electricity, food, car, and mortgage payments. Now, as with credit cards, consumers are struggling to keep up with their medical bills and increasingly letting more and more of their bills go unpaid.

The Commonwealth Fund, a healthcare research foundation, reports that in 2007, 41 percent of adults were struggling to pay their healthcare bills, up from 34 percent in 2005 (“When Medical Bills Outpace Your Means, Seize Control Swiftly,” The New York Times, April 25, 2009). And it’s not just the uninsured who have fallen behind on their payments, nearly two-thirds of people with medical debt actually have health insurance.

Experts say, however, that there are ways to manage your medical debt even if you aren’t capable of paying it off right away.

1. Communicate with your creditor.

If you know you’re going to be late on one or more of your medical bills, let your creditors know. Just talking with them won’t obligate you to make a payment, but if your creditor is aware that you’re trying to stay on top of your debt you may be able to avoid collections, at least temporarily, and protect your credit.

2. Review your bills.

Keep a running tab of your doctor visits and medical procedures to accurately review your bills when they come in. Errors in medical billing can occur often, so if you find a discrepancy call your provider for an explanation. And remember that it can never hurt to resubmit bills to your insurer if you’ve been denied coverage.

3. Bring in extra help.

Try negotiating with your provider for a discount or for some leeway on repayment. If your creditor still won’t work with you, consider hiring a billing specialist who may be able to help you find errors in your medical bills and better understand the often-complex language of medical billing.

4. Avoid the plastic.

Don’t react with panic when you receive a late-payment notice by transferring your medical bill debt onto your credit card. Chances are if you can’t pay your medical bill now, you’re not going to be able to pay the credit card bill when it comes in later. And medical bill charges that stay on your credit card will immediately start earning interest, not to mention that charging a large sum to your credit card could negatively affect your credit score, if you’re carrying too high a debt load.

5. Know your rights.

Just because a medical bill goes to collections, doesn’t mean creditors have free rein to hassle you into paying; they have guidelines and rules to abide by — they can only call between 8 a.m. and 9 p.m. and they can’t scare you into paying the debt. Ask for the caller’s name and request that they send you the name of the creditor and the amount you owe in writing. Visit the Privacy Rights Clearinghouse for a guide to debt collection.

Popularity: 13% [?]

The credit crisis has taken its toll on many consumers’ immediate ability to borrow and pay down their debt as, over the last year, banks and other lending institutions have slashed credit limits and hiked interest rates in an effort to protect themselves from rising consumer defaults. But economists predict that this vastly altered consumer credit market won’t be a fleeting change.

“In the previous two decades, our credit scores have become more important over time,” said personal finances expert Liz Pulliam Weston (”Rules Have Changed for Consumer Credit,” Chicago Tribune, April 19, 2009). “Then in the past year, it’s suddenly become critical.”

She warns that if consumers don’t pay attention to these recent credit developments they could make some costly mistakes that could negatively affect their personal finances.

1. Credit Scores

The overhauled credit markets have polarized the world of credit scores: now there’s good credit and bad credit and relatively little in between. Consumers with good credit have seen little to no effect on their financial lives, while consumers with less than stellar credit are increasingly facing higher interest rates, more stringent loan terms, and disqualification from all types of loans — home, auto, student, etc.

The Recommendation: Don’t take on any more debt and start paying off your existing debt.

2. Credit Benchmarks

The qualifications for good credit and bad credit have also shifted. About a year ago a 700 to a 720 FICO credit score — the most widely used credit score formula — was considered acceptable for most consumer loans, and a 620 FICO score was considered subprime and subject to less favorable terms. Today, consumers need a 740 to a 760 credit score to get the most consumer-friendly loan and credit card terms, and consumers with a 660 to 680 score are considered subprime.

The Recommendation: Pull your credit report to see if there are any unforeseen blips or mistakes that could have dinged your score. You can get a free copy of your credit report from each of the major reporting bureaus once a year at annualcreditreport.com. For a free estimate of your credit score, you can use some of the new credit simulators at Bankrate.com, Quizzle.com, or Credit.com to get an idea of where you stand, but if you’re considering taking out any new loan you may want to use a site like MyFICO.com to pull your actual credit score and see where you really fall on the new scale.

3. Credit Limits

Consumers with lower credit scores are having their credit limits slashed by credit card companies, which can severely throw off your credit utilization ratio — the ratio of your available credit to how much you’ve borrowed — and consequently, lower your credit score.

The Recommendation: Consumers with good credit scores, 750 and above, can try negotiating with their creditors to reinstate lines of credit, if need be. Creditors are more willing to accommodate consumers with good credit since they are harder to come by in this recession.

4. Card Cancellations

In addition to lowering limits, credit card companies are shutting down lines of credit due to low use, which may be one of the few credit changes to hurt consumers with good credit.

The Recommendation: Make sure to occasionally use the cards that you keep in the “back of your wallet” — charging some purchases at least a few times a year — and promptly pay off the balances on these cards in full.

5. FICO Score Formula Changes

One of the three major credit reporting bureaus, TransUnion, has begun using Fair Isaac’s new FICO score formula, which places more emphasis on your credit utilization and ignores overdue balances of less than $100. It’s unknown when or if the other credit bureaus, Equifax and Experian, will follow suit.

The Recommendation: Keep balances to below 30 percent of your available credit, and if possible, try to bring your credit utilization down to 10 percent to get better interest rates and more favorable borrowing terms on consumer loans.

Popularity: 9% [?]

Sen. Bernie Sanders, I-Vt., has a plan to rescue consumers from interest-rate hikes on everything from mortgages to credit cards: He’s proposed a piece of legislation that would force all companies offering consumer loans to cap interest rates at 15 percent, according to The Bennington Banner (“Sanders Seeks Interest Rate Cap,” March 13, 2009).

Currently, credit card companies, based on a 1978 Supreme Court decision, are only required to abide by the interest-rate restrictions enforced in their home state. Many financial services companies have taken advantage of this state-by-state enforcement and established headquarters in South Dakota and Delaware, states that don’t have restrictions on how much interest banks can charge.

Sanders’ bill would overrule that court decision, imposing the 15-percent interest rate cap on credit cards and consumer loans issued in all states, and would limit the fees banks can charge. His plan is modeled after a similar interest rate cap implemented under the Federal Credit Union Act nearly 30 years ago, which was set at 15 percent and later increased to 18 percent in 1987 by the National Credit Union Administration.

“If a rate cap has worked for credit unions all these years, it could work for our friends in the financial industry as well,” Sanders said.

A New Era for Credit Card Rates

Sanders believes his legislation will be met with staunch resistance from banking industry lobbyists, but he says it’s time for financial service companies to end their “culture of greed.”

Credit card companies are taking billions of dollars in taxpayer bailout money, and, in some cases, receiving zero-interest loans from the Federal Reserve, all while ratcheting up fees and interest rates. Citigroup credit card holders, for example, have been told their rates could go as high as 30 percent if they miss a single payment, and JPMorgan Chase customers who have large balances may have to start paying $10 monthly fees.

Sanders says the free-wheeling rate hikes and fees currently implemented by banks is “loan sharking,” and these banking tactics are making it even more difficult for struggling consumers to pay down their debts.

“This is very significant because right now there are millions and millions of people who are paying outrageously high interest rates on their credit cards. We think enough is enough,” Sanders said. “At a time when things are so bad, they need relief in terms of these interest rates.”

Popularity: 5% [?]

Credit card holders just barely bucked year-end credit card trends at the end of last year, charging less than expected and making slightly more of an effort to get caught up on their credit card balances compared to 2007, according to a recent anonymous survey of 27 million random TransUnion credit profiles. (more…)

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A father and son duo from Ohio, whose credit card debt relief scheme caused consumers to lose more than $2 million, have been sentenced to the maximum federal prison terms offered as part of their plea bargain (more…)

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If you’re facing eviction or foreclosure or if you’ve already been evicted or lost your home to foreclosure, you’re not alone, and you could soon get government aid thanks to a new program created under the American Recovery and Reinvestment Act. (more…)

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More Americans are struggling to pay off their medical bills as they continue to lose their jobs, along with their health insurance, to a worsening economy, and as scaled-back health care contributions from employers make a bigger dent in the personal finances of those consumers who still have their jobs. (more…)

Popularity: 9% [?]

J.P. Morgan Chase & Co. has agreed to modify more than $1 trillion in mortgage loans the bank previously owned and sold to investors in an effort to help more Americans avoid foreclosure and to help stem lenders’ losses from foreclosure, reports The Wall Street Journal (“J.P. Morgan Expands Loan Effort,” Jan. 16, 2009). (more…)

Popularity: 6% [?]

Consumers’ access to credit could get even tighter as creditors continue to slash consumer credit lines and move to close inactive credit accounts – defensive measures meant to protect banks against the surging number of consumer defaults, reports The Wall Street Journal (”Credit Card Companies Slash Credit Limits,” Jan. 5, 2009). (more…)

Popularity: 8% [?]

Credit card companies will soon have to abide by new federal regulations meant to protect consumers from interest-rate increases and other unfair credit card practices, reports The Associated Press (”Regulators Adopt New Credit Card Rules,” Dec. 19, 2008). (more…)

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