Are you struggling to pay your bills and getting notices from debt collection agencies? Have some of those collection notices turned into intrusive and aggressive phone calls demanding payment?
If the answer is yes to any of those questions, you are part of a growing segment of the population with financial problems that sometimes seem overwhelming. Regardless of the core financial problems like losing a job, a divorce, exorbitant medical bills, tax problems, or other issues, please don’t lose heart. With proper planning and guidance, your financial situation can improve.
Many consumers find themselves in a financial hole that can seem impossible to climb out of at some point or another. This can be the result of numerous issues that include easy lending standards, aggressive credit card marketing, and more.
Whatever got you into debt is irrelevant, how you will get out of debt is what really matters. That being said, one of the most common questions asked of debt resolution and financial experts is whether or not debt in collection should be paid off.
Having a debt collection account is not pleasant. Many collectors, in fact, will turn to aggressive collection practices to try to obtain the money. These practices may include phone calls at work, late evening or weekend calls, threats, and even lies. Debt collection agencies have, however, become more regulated in recent years. This has led to a decline in aggressive collection practices, but not all companies play by the rules.
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Having an account or accounts placed with a collection agency is not the end of the world. Knowing how to deal with these agencies can not only get the debt resolved, but may also save you money and aggravation. Knowing how to speak and deal with a debt collection agent can make the entire resolution process simple, convenient, and possibly even enjoyable. The key is to keep in mind the goal of the debt collection agencies. That goal is to recover as much capital as reasonably possible within a reasonable amount of time.
For some consumers, having debts turned over to collection agencies seems to happen in waves. That is to say that they do not just have a single account to rectify or settle, but they may have several accounts to deal with at the same time. Those accounts may be with the same collector or different agencies, and varying methods may be employed to collect the money.
When a consumer has an account that goes into collection, the credit report effects can be significant. A 30-day late payment may ding a credit score by 30, 40, or even 50 points while a 90-day or 120-day late payment could force a score decline of over 100 points or more. Many consumers that have collection accounts wonder if they should still pay off the debt. After all, the credit damage may already be done, and the creditor has already written the debt off. Let’s address this issue and attempt to provide some clarity for those looking to resolve their debts.
The first and perhaps most important issue at stake is whether the collection agency will remove the file from your credit report once it is paid or paid in full. If a collector is unable or unwilling to negotiate this issue, then not paying the debt off could make more financial sense. If they are willing to remove the debt from your credit file, however, it is likely well worth the effort of getting the debt paid off in full. The trick is to not only negotiate the removal of negative credit reporting but to make sure the agency follows up on its promise and actually removes the file from credit bureaus.
Although a collector may be unwilling or unable to provide something in writing, it never hurts to ask for a written agreement. The worst that can happen is they say no. If they are willing to put an agreement into writing, make sure it spells out what both sides of the ledger will do and within what time frame. A collector, for example, may require up to 30 days for file removal from the three major credit reporting bureaus once payment has not only been received but cleared.
If the agent will not or cannot provide a written agreement, make sure to ask them clearly and be specific. You may then agree to pay the account, in part or in full, if you feel the agent is being honest and will honor their side of the agreement. It’s always best to get everything in writing though, so it could be in your best interest to decline if they’re aren’t willing to agree to anything in writing.
Also, if they can’t remove the debt file from the credit reporting agencies, you can elect to not pay the account or attempt to settle the debt. Settlement may include paying an amount that is less than the amount owed or making installment payments over time. Even if the file cannot be removed, it will still be paid off, and you will not have to deal with collection calls, letters, and tactics. Make sure to check on your state’s Statute of Limitations timeline. Once you start repaying on an old debt, that starts the “time clock” back up for allowing them to get the debt owed to them.
Debt Collection –
If you have stopped payments on one or more of those bills, you might be getting phone calls from debt collection agencies. This is hardly surprising. According to the Collection Agency FAQ published by cardreport.com, employees of debt collection agencies are paid, usually on commission, to call debtors and demand payments from them. Debt collectors heckle debtors because if they are able to collect payments from them, they receive handsome bonuses.
A debt collection agency has one purpose: to collect a debt owed to their client by the debtor. They are not in the business to counsel you on how to manage your finances. How the agency goes about collecting that debt usually depends on the size of the debt, when the last payment was made, and how the debtor responds to the collection attempt.
The worst thing you can do is to avoid the collection attempts or outright refuse to pay. There are no debtor prisons in the United States anymore, but refusing to pay money that you legitimately owe can land you in a “financial prison.” Your credit rating can be ruined, your paycheck can be garnished, and you can even be forced into bankruptcy.
Even though the collector’s voice may be harsh and demanding and even threatening, there is some recourse for the debtor to pursue in order to resolve the issue amicably. We’ll talk about your rights when it comes to debt collectors and harassment further along in this article.
Credit Counseling –
Certified credit counselors are trained experts who evaluate your total financial situation and then work with you to establish a plan to pay off your debt. They may recommend a Debt Management Program. Their purpose is usually two-fold. First, they will set up a budget for you and explain if you have a shortfall (a deficit) or if you have money left over each month. They will also help you find ways to make cutbacks and save more money each month. Then, they will discuss some debt relief options with you. They may talk about a Debt Management Program, Debt Consolidation, DIY options, Bankruptcy, etc.
Credit counseling can be a very positive experience, one that hopefully brings you peace of mind and a feeling of relief from all of your debt problems. But for the system to work, you have to be completely honest and forthcoming about the financial figures you bring to the “counseling table.” In essence, a credit counselor can only help if you are honest about your current financial situation and are willing to get help.
If you decide a Debt Management Program is right for you, your counselor will work out a debt pay-down schedule and amount. Then, the payment plan is submitted to all of the creditors, and this is called a proposal. In the event a creditor is unwilling to accept the pay-down terms, you can still enroll in the debt management program and just pay that creditor on your own each month. The other creditors who have accepted (most will) are paid every month by the credit counseling agency. You will send a payment or have an amount withdrawn from your bank account. That payment will be split up appropriately and then sent to each creditor every month. You continue this until all of your debts have been paid in full.
Handling debt payments through a plan like this often mutually beneficial to both the debtor and the creditors. Your counselor may be able to restructure the debt and talk with the creditors to have them lower the terms to your benefit.
One term that might be lowered to help you out is the interest rate. Many times you’ll receive concessions from the creditors such as a lower interest rate, waived or reduced fees/penalties, shorter payoff time, no more phone calls, etc.
If you’re on a very tight budget, it’s more likely than not that most or all of your paycheck is going to your regular monthly needs: mortgage/rent, utility bills, food, cell phone bill, and Internet service. A debt management program can help you get out of debt while still being able to take care of these other important financial responsibilities.
Debt Management Program –
If you are considering credit counseling services and a debt management program to deal with unmanageable debt, congratulations! Admitting that you need help is the first and most important step to take when trying to solve difficult financial problems. Call an Advantage CCS representative today and find out more about our in-person, over the phone, and online credit counseling services. Sign up for a free credit counseling session as soon as you can.
Know Your Rights –
The United States Federal Trade Commission has published several sources that list debtors’ rights when it comes to debt collection and collections agencies. The FTC Web site advises that if you are having trouble meeting your bills, you should contact all companies or entities to which you owe debts immediately. This ensures that your creditors are aware of your status. Some companies – for example, utility bill companies or cellular phone service providers – will permit you to work out payment plans that take your low cash flow into account.
There is actually a federal law in place called the Fair Debt Collection Practices Act (FDCPA) that outlines what constitutes legal and illegal debt collection practices. You can review the act in its entirety at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre27.pdf. Make sure you understand your rights as a consumer before you attempt to deal with debt collectors. You might want to review the Fair Debt Collection Practices Act with your Advantage CCS credit counselor, as well. He or she can help you identify the parts of the act that are most important for you to understand, or learn how the act pertains to your specific debt management situation.
If you owe debts on medical bills or student loans, discuss this with your counselor as well, and formulate a plan of action for these types of debt during your free credit counseling session. For student loans, you will likely be able to put your loans into deferment or forbearance if you are able to prove your inability to pay due to a hardship. According to American Education Services (AES), you should try to pursue deferment first. Though deferment and forbearance both suspend monthly loan payments during your period of financial difficulty, you are responsible for any interest accrued on loans placed into forbearance.
The Federal Trade Commission also advises that you ensure your credit report is accurate, especially if you have just been laid off and are having trouble meeting monthly bill payments. It’s true that the lower your credit score is, the harder it is for you to do many of the things in life that should be relatively painless, such as: applying for jobs might require credit checks; renting an apartment, buying a house or car, will also require credit checks. If your credit score is lower than it should be, or there are multiple errors in the report, you should have the report corrected immediately. You can discuss the best steps to take during your credit counseling session.
Not having enough money can be tough. Fortunately, being aware of your rights, signing up for a free credit counseling session, enrolling in a Debt Management Program, and taking steps to repair your credit can help you during a rough financial period. Let the credit counselors at Advantage CCS help you get your financial life back on the right track!