It can happen to anyone – you have a string of bad luck and suddenly find yourself getting behind on your bill payments
Then the unthinkable happens – though you try hard, you find yourself unable to make any payments at all.
The dreaded collection letters and calls begin.
What can you do to help yourself in this situation?
Well, one solution is to try to negotiate with the debt collector.
Before you pick up the phone to start debt negotiation, however, there is some legwork that you need to perform. You need to learn about the debt and plan for making a realistic proposal to the collection agency.
As you prepare your pitch to the collection agency you might consider the following three step plan to get ready for your negotiation.
Your First Step in Debt Negotiation – Research the Debt
A debt collector – usually an agency – who contacts you in order to collect a debt is required to provide you with certain information either at first contact or in writing within 5 days after contacting you.
This includes –
- The name of the creditor seeking collection
- The amount owed in the collection
- Information that you can use to dispute the debt or request the name and address of the original creditor, if this differs from the current creditor.
If you are unsure who your debt is owed to, or how much you owe, you absolutely need to learn more.
When you dispute a debt or part of a debt with the debt collector -and this is done in writing within 30 days of receiving the validation notice – the debt collector it is not allowed to contact you again until it sends you written verification of the debt
There are sample letters on the internet that you can use to respond to a debt collector who is trying to collect a debt.
Using these sample letters may help you to get more information on the debt, set limits with the creditor, stop any further communication, or help you exercise some of your rights.
When you are contacted, if you don’t recognize the name of the creditor, ask what the original debt was for -credit card, mortgage foreclosure deficiency, etc. – and request the name of the original creditor holding the debt
When you receive the debt collector’s response, compare it to your own records to make sure you can trace the debt.
Your Second Step in Debt Negotiation – Planning A Repayment Proposal
If after doing due diligence on the debt the collector has contacted you for and you decide you want to make a repayment proposal consider the following –
Review Your Other Debts
You need to take a hard look at your finances and make a realistic decision regarding how much you can pay each month.
Make sure you review your other debt priorities. Falling behind on other bills because you are paying off this debt can snowball on you and cause you worse problems.
Create A Debt Payment Spending Plan
Use a budget spreadsheet template or write down a summary of your monthly take-home pay and all your monthly expenses. This includes the amount of this debt you want to repay each month and other debt payments you have.
Make sure that you allow some income to cover unexpected expenses and emergencies. You can seek help from a credit counselor; they often provide free services through nonprofit organizations
Always be wary of companies that claim they can renegotiate, settle, or change the terms of your debt.
When making the spending plan, decide on the total amount you are willing to pay to settle the entire debt. This could be a lump sum or you may decide on a number of payments.
You absolutely should not pay more than you can afford.
If you have an old debt, do not make a payment on it until you speak to a lawyer. Research your state’s “statute of limitations” on the old debt before you make any payments.
The period of time you can be sued for a debt is called “the statute of limitations”. In general, most statutes of limitations fall in the three to six years range. Be careful though, some jurisdictions may extend this for a longer period of time.
If you make a partial payment this can restart the statute of limitations on a debt for certain states. It can also restart the time period for how long the negative information continues on your credit report.
If the statute of limitations is close to expiring, it might place a debt collector in a position where they may be willing to negotiate with you on more favorable terms.
If the statute of limitations has passed, then this may stop the creditor or debt collector from obtaining a judgment.
Begin negotiations with the debt collector
- Describe the Plan – Make sure you honestly explain your financial situation to the debt collector. You might be pleasantly surprised that you have more room to negotiate with a debt collector.
- Document Your Conversation – If you agree to a repayment or settlement plan, record the plan and the debt collector’s promises. Those promises may include
- Stopping collection efforts
- Ending or forgiving the debt once you have completed these payments.
It is important that you get any agreements in writing before you make a payment.
What to strive for when settling a debt
- Make every effort to pay as little as possible. At this point you are already delinquent on the debt and the collector is honestly happy to get anything at all.
- Before paying off the debt try to negotiate that as a part of the settlement they do not report the collection to the major credit agencies. This is doable and not many people are aware of this. Even after paying off the debt it will still be reported if not negotiated otherwise as a collection, just as a closed collection or a settled collection.
Debt Settlement Warning
Dealing with debt settlement companies can be risky.
Some debt settlement companies over promise. And certain creditors may also refuse to work with the debt settlement company you choose.
Unfortunately, in many cases, the debt settlement company will be unable to settle the debt for you, no matter what you try.
Remember to be careful.