Many people struggle with debt and sometimes you may not be sure how to attack it, especially if you’re delinquent on multiple accounts. Typically, the creditor will make various attempts to recoup their money that is owed to them, however at some point they may give up and charge-off what you owe them. A charge-off means that the creditor has given up on trying to get the money from you and after that two things occur…1) they refer the account to a collection agency (either an in-house firm or third party) who then becomes responsible for recouping the money and 2) it’s reported as a negative item on your credit report.
With any long overdue account, trying to settle that account in some form or fashion may be your best bet. Sometimes, if an account has gone to collections, they may even send you a letter stating that you if you pay 70%-80% of the outstanding balance, then you’re good to go. For example, if you owed $10,000 and they say you can settle by paying $7,000, then that’s a win!
But if that’s not the case, here are some things you NEED to know about settling an account:
- You have rights under the Fair Credit Debt Collection Practices Act (FDCPA) Sometimes creditors and collectors can appear to be nuisance, but keep in mind they are just doing their job. However, they have guidelines that they must adhere to and being abusive and or harassing is a big no-no.
- Make them validate the debt. Collection agencies purchase debt from the original creditor or they are working on behalf of the original creditor. If the collection agency contacts you and asks for repayment, simply ask them to verify that you actually owe the money. In accordance with the FDCPA, collection agencies that have been assigned a debt are not the creditor and therefore they cannot prove that you owe the money. Why? Simply because you never signed a contract with them. However, there is one exception…if the contract you signed with the original creditor has the insertion “…debtor agrees to be responsible for payment of this debt to creditor or its assigns”.
- Build rapport with your creditors/collectors. Dealing with creditors and collectors can be intimidating but remember, you created the debt and owe the money. Explain to them that you’re unemployed, or that an unexpected death or illness has occurred. They need to know something and they understand that life happens, but leaving them in the dark about your situation is NOT the thing to do.
- If negotiating payment arrangements, make sure you have the money! Having the money to negotiate with is essential. Knowing this dollar amount will allow you to discuss a realistic payment schedule that fits with your spending plan. Also, the terms you discuss will of course need to be acceptable to your creditor.
- While negotiating, keep your emotions in check. Again, your creditor has a job to do and you owe the money. But they will be more willing to listen to you if you stay cool, calm and collected during the entire process.
- DOCUMENT, DOCUMENT, DOCUMENT! You must get everything in writing once you have negotiated a settlement payment or plan. Once that’s complete, ask your creditor to fax, scan/email or mail the plan to you.