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It's possible that any or all of your bank accounts could end up being placed in the grasp of a debt collector if you've fallen on bad times financially and are finding it difficult to pay your payments. The Urban Institute estimates that 68 million adult Americans had delinquent bills as of 2019. Based on Federal Reserve figures, the amount of outstanding consumer debt in the United States as of the third quarter of 2020 was $485 billion.
Fortunately, you don't have to be powerless while negotiating with a debt collector. It's critical that you don't neglect your debt after it enters collections. After all, you are still legally liable for the loan. You can attempt to pay it off by working out a payment plan or by making one large payment at a time. What happens, though, if you and the debt collector are unable to come to an agreement? If taking legal action is required, you can get assistance from an attorney or an independent financial counseling group.
It's possible to get your finances in order, no matter how you choose to handle debt that is in collections. Your credit scores will eventually rise above the collection account and disappear from your credit record. What you should know to begin the healing process is as follows.
Before you do anything further after finding out that your debt is in collections, take a moment to relax. There are plenty of options available to you, so there's no reason to worry or act hastily. Now is the moment to act independently.
You might be tempted to disregard the calls and letters that debt collectors appear to be sending out on a daily basis. But, putting off paying the debt won't make it go away; on the contrary, it can get worse. So, the best course of action is to recognize and address the debt. By doing this, you can calm your anxiety and lessen the harm that will be done to your credit.
The debtor—your credit card provider or the bank from whom you obtained your auto loan, for example—will probably handle debt collection if the obligation has only been past due for a few months. Before your debt is transferred to another organization, you should resolve your issue with the creditor. In the event that the creditor cannot manage to get payment from you, it may sell your debt to a different business or debt collection agency. After the creditor sells the debt, it may be bought and shifted from one debt collection agency to another on multiple occasions.
If the debt collector is contacting you, think about requesting them to stop. The worry that arises from returning debt collector calls or discovering a menacing letter in the mailbox might be avoided by doing this. If you make that written request, most of the time a debt collector has to stop contacting you, unless it's confirming that it will stop or to let you know that you're receiving legal action. Stopping calls and mailings linked to collection won't, however, make your debt go away. It is still possible for the debt collector to sue you in order to recover its money, and your debt in collections may be reported to credit agencies.
The main objective of the creditor or debt collector while a debt is in collections is to obtain all or part of the money that is owed. As a result, you could try to bargain for a means of paying off the debt, either making a one-time payment or agreeing to a long-term instalment schedule.
Make sure that before you submit a settlement offer, you have determined what amount you are able to afford to pay either in full or in instalments. Present your concept to the debt collector after that. You may offer to pay off your remaining $2,000 sum on a personal loan over a 24-month period, or you could offer to pay off two-thirds of the $4,000 you have left to repay on a credit card. Make sure you know who has to pay before you give over a single penny. You are going to send your money to the original creditor if they are still the owner of the debt. You are responsible for paying the outside company if your debt was transferred from the original creditor to them.
Should the debt collector file a lawsuit against you, it could be wise to have legal representation if the matter proceeds to trial. The debt collector won't get in touch with you until you retain legal counsel. Instead, your attorney and the collection agency will be the only ones in contact.
Let's assume that you have not been sued by the debt collector. You might want to contact a charity credit counselling program for help in this situation. In order to help you get back on an improved monetary track, the program can pair you with a professional credit counsellor who will create a repayment plan and household budget.
Being hounded by debt collectors can be frightening and unpleasant, but there are things you can do to take some control back. Your interactions with debt collectors are governed by the Fair Debt Collections Practices Act, a federal statute. Here are some additional rights you have in addition to asking a debt collector to stop contacting you by phone or email:
As we've discussed, settling a debt that has been sent to collections through a payment plan or by negotiating a lump sum payment is the best options. A major step toward bidding farewell to debt collectors and ultimately settling the debt is beginning the method of paying off the obligation.
Think of all of your debts before deciding on a lump amount or payment plan. List all of the credit card and loan balances you now owe money on, along with the interest charges and monthly payments associated with each one. Next, figure out how much you owe each month for each of these bills. You may view all of your debt amounts in one location by obtaining a copy of your credit report.
Compile a list of all your other expenses and then add up all of your debts. Rent, food, utilities, and gas are all included in this. Making a monthly average of your non-debt expenses will help you because some of these costs change every month. This can be done by calculating your spending over the previous several months.
The monthly total of your debt and non-debt expenditures should then be subtracted from your after-tax income. You can apply the difference to pay off the outstanding debt if your income exceeds your expenses. Try to find ways to reduce your expenses, generate additional revenue, or both if the remaining amount is less than what you owe.
You do not need to notify Equifax, TransUnion, and Experian, the three major credit agencies, once you have settled or paid off debt that has been in collections. The reason for this is that the collection agency is required to notify the credit bureaus about the erased debt so they can show it as "paid" or "settled."
What happens if the collection agency fails to report to the credit agencies that the amount owed has been settled or paid off? To get your credit record amended, submit a dispute to the credit bureaus.
Your credit scores may be negatively impacted by collection accounts, but your credit may not always rise when you pay off or settle an item that is in collections. Older credit score models take into account accounts for collection with a zero balance, but newer models ignore them. That is to say, collecting debt that has been paid off or settled may improve your credit under more recent scoring models, but it may not affect your credit under more traditional scoring models.
It's difficult to predict with certainty if settling off a collection account would help you get better terms on credit because it's unlikely that you'll know whose credit scoring model—if any—your future lenders will employ.
Seven years after the date the bill first became past due, a collection account is still shown on your credit record. The collection record is immediately deleted from your credit history following the seven-year window. Sadly, if the seven-year period has not yet ended, you are unable to have a paid-off or resolved collection account eradicated from your credit report.
Please don't ignore a debt that you have given to debt collectors. A past-due obligation only gets worse if calls and letters are ignored. Over time, the debt won't just go away. However, you can confront the debt head-on by first being truthful about the circumstances and then acting.
Need help managing your debt recovery process? Shepherd Outsourcing provides professional solutions that take the stress out of debt collection. Contact us today to find out how we can help you reclaim unpaid debts and move forward with confidence.
Disclaimer: The information provided in this article is for general informational purposes only and should not be considered financial advice. While we strive to provide accurate and up-to-date information, financial decisions should be based on your own research or the guidance of a certified financial advisor. We do not make any warranties regarding the completeness or reliability of the content discussed. Any action you take upon the information provided is strictly at your own risk, and we are not liable for any losses or damages incurred as a result of its use. Please consult a professional financial advisor for personalized debt management advice.
©2024 by Shepherd Outsourcing.