Debt Tips

Millions of Americans have found themselves in financial circumstances which have caused them to default on consumer, installment and mortgage obligations. In most of these instances, the defaults occurred through extenuating economic circumstances beyond their control. We've put this abbreviated guide together to help you through the difficulties and challenges that can occur as a result of these debts.

Stopping debt collectors from contacting you.
Can A Collection Agency Contact Third Parties About My Debt?
What do I do if I don't believe I owe the debt?
Can my wages or bank accounts be garnished by a collection agency?
What is the typical debt settlement amount I should expect to pay?
How to get out of debt?
What can i do about credit card debt?
What can i do to improve my credit score?
What happens if i don't pay my credit cards?
Self-Help Tips

Stopping debt collectors from contacting you:
While communicating with your creditors is important, if you are not in a position to resolve a financial obligation and you're tired of getting phone calls and notices, you can take specific steps which creditors are legally required to honor. Sometimes, it is better not to communicate with a collection agency versus saying something which could compromise your ability to negotiate a more favorable debt settlement in the future when your finances allow for resolution. To stop a debt collection agency or creditor from contacting you, you'll want to write a letter telling the collection agency to stop contacting you via phone or via mail. They will still be able to contact you to tell you they are going to take a specific action (i.e. to tell you there will be no further contact, or they intend to take a specific action such as filing a lawsuit). When sending your letter, you want to ensure you send it certified mail, return receipt requested. The return receipt acts as your proof of both sending the letter, and of the collection agency having received it. Sample Letter To Stop Debt Collection Phone Calls.

Can A Collection Agency Contact Third Parties About My Debt?
Yes. A collection agent can, and they often do, contact third parties in order to locate a debtor. Also known in the industry as "skip tracing", a creditor can contact friends, relatives, neighbors and other creditors in an effort to attain current contact information such as your home phone number, work phone number, where you work and home address, for the purposes of collecting or enforcing a debt. However, they cannot discuss the debt with a third party without your permission. If you have an attorney who represents you for the debt, the collection agency is required to speak only with the attorney, rather than you. To stop creditors from contacting relatives and friends, use the first tip on stopping communications from creditors. You may also want to consider ensuring your contact information in your credit report files is current and up-to-date. Even if stopping communications, you certainly want to know if someone is filing a lawsuit against you to enforce a debt.

What do I do if I don't believe I owe the debt?
Under fair debt collection laws, every collection agency or creditor must send a notice within 5 days after contacting you in which they provide written validation of the financial obligation, creditor information and the amount you owe. If you believe you do not owe the debt, or you have no "memory" of having ever taken out the financial obligation, you can dispute the debt by providing a written request of verification of the debt to the creditor or collection agency. This request must be done within 30 days after you have received the validation letter from the agency. A sample letter to dispute the validity of a debt. If disputing a financial obligation, we recommend having an attorney draft the dispute and that any dispute is sent certified mail, return receipt.

Can my wages or bank accounts be garnished by a collection agency?
Yes. If you fail to pay a creditor or collection agency and do not take actions to make some agreed upon repayment arrangement or dispute of the financial obligation, a collection agency or creditor can take actions in court to attain a judgment against you. When a judgment is awarded to a creditor or collection agency, they can garnish wages or bank accounts to satisfy the judgment. Don't disregard any summons you receive or notice of legal action from a creditor and seek immediate legal representation.

What is the typical debt settlement amount I should expect to pay?
Many factors are involved in the settlement of debts including your income and the amount of the debt. So, if your income is 45K a year, and the debt amount is $80,000.00, well, any sane person knows you're never going to have the ability to pay that kind of debt off any time soon. So, the higher the debt amount is, the better the probability is you can get a significantly lower settlement amount. Debt settlement amounts can range from 15¢ to 60¢ on the dollar. Factors in play can be the past relationship you had with the creditor/collection agency and the volume of accounts you are helping the creditor to settle. That's one of the reasons working with a debt settlement company can really help reduce the amount you end up paying.

How to get out of debt?
The most effective way to manage debt is to begin with analyzing your financial obligations with the highest rate of interest. Focusing on paying off high interest rate creditors first has the net affect of reducing your effective rate of interest, and will free up money to payoff lower interest rate loans. You can also take the smallest balance approach which, while not "saving" as much money, does have the affect of generating payoffs at a faster pace. Regardless of the method you choose, we recommend starting with one creditor at a time and paying any additional funds you can afford towards the principle every month. Once you have your first debt paid off, repeat the process for the next creditor increasing the amount you pay by the monthly payment amount of the debt you just paid off. Over time, this process will eliminate your debt without negatively impacting your credit.

For example. You have 2 credit cards and one installment loan. Credit card 1 you own $500.00 on and the monthly payment is $25.00, credit card two you owe $2200.00 and the monthly payment is $79.99 and on your car loan you owe $12,000.00 and your monthly payment is $325.00. Making all of your scheduled monthly payments, you add into your $25.00 a month credit card payment an extra $100.00 a month. In 4 months, you will have your $500.00 credit card paid in full. Rolling that over, you now have a $79.99 monthly payment and a $325.00 monthly payment, you add into your 79.99 month credit card payment the $100.00 and the $25.00 you were paying on the $500.00 card for monthly payment of $204.99 a month toward your 2200.00 balance. In approximately 12 months you will have the second credit card paid off. You then roll the $204.99 monthly payment into the $325.00 monthly installment payment for a $509.99 monthly payment, paying off the vehicle loan in approximately 18 months. Naturally, if you can pay more, you can chop down your debt pretty quickly, improving monthly cash flow and your ability to save!

What can i do about credit card debt?
If you're paying your credit cards on time, have good credit, but are just tired of having 4 or 5 monthly payments hanging over your head, we'll refer you to the last question which provides the easiest method to get credit cards paid off quickly. If you're tired of living for creditors, one way to stop the cycle is to close all of your credit card accounts that presently have a balance. Now, this step could negatively impact your credit. Regardless, you continue to make payments and eliminate the ability to use the cards and compounding your credit card cycle. You can also look to your bank or credit union and consider the option of converting your credit card balances into lower interest installment loans that have set repayment terms. The most important thing to ensure, is you read the fine print on your credit cards and not do anything that will result in an increase in interest rate or an involuntary increase in your monthly payment. Pay them on time and pay as much as you can every month towards your principle.

What can i do to improve my credit score?
Beyond the obvious of making on time payments, the reality is that every situation is unique. We recommend you speak with one of our agents about a credit repair service before taking action as things you do that you believe will improve your credit could in fact hurt your credit score. Now, if you're rebuilding credit, one of the safest ways of doing this is taking out a 12 or 24 month installment loan and securing that loan with a certificate of deposit of equal value. Make your monthly payments on time and you'll improve your credit score. If you lose your job or some other financial hardship arises, you simply cash out the CD, pay off the loan balance, protecting your credit, and in almost all instances, you'll have cash left over to help you work through the crises.

What happens if i don't pay my credit cards?
At some point, these credit cards will be charged off and referred to a collection agency. In the past, it was easy to get out of unsecured debts using bankruptcy laws. Today, you have to really prove you are insolvent and it's getting harder and harder to get out of these financial obligations. When you stop paying a creditor, fees add up, interest continues to accrue, collection fees are added, attorney fees are added and you can go from a $500.00 charge off to owing $3000.00 pretty easily. Ideally, you want to avoid these circumstances as even if a judge cuts the amount in half, you could still end up paying three times what you originally owed when you defaulted.

Self-Help Tips:

• Always keep copies of documents and correspondence from your creditors. This includes:
  • All signed notes and mortgage documents
  • Account statements
  • Copies of Payments such as money orders or checks
• Never get into verbal confrontations with your creditors or a collection agency. They are not productive and can impact future negotiations. You are much better off saying nothing than saying something that may be used against you in the future.
• Keep notes on all communications with creditors and collection agencies. They keep notes, you should as well.
  • Maintain records to include; date and time of phone calls. The phone number the calls came from. The name of the individual and company name. Get the individuals company I. D. number. Take notes on what was said by them and by you. Take down any reference or account numbers and balance amounts along with offers/proposals made by the agent.
• If you cannot pay a creditor, be honest and ask for options. Write them down. Politely tell the creditor you will think about the options and call them back at a later date when you're in a better financial position. If you do not want phone calls or other communications, send the appropriate written letter.
• If you dispute the validity of a debt, do so both verbally and in writing using the appropriate process.
• If you can afford it, retain a collection law attorney.
• If you agree to settle a debt, always get a signed settlement offer in writing before making ANY payment to a creditor or collection agency, no matter how much pressure they put you under to make the payment first. Without a signed written offer for settlement from the creditor or collection agency you could remain liable for the difference between what you paid and the balance owed.
  • Make sure any settlement offer has not expired before making any payment.
  • Always make sure any settlement offer has the original creditor name and account number referenced on the letter before making any payment.
  • After payment is made, you will want to get a copy of the cleared check for the payment. If on a multi-payment plan, you will want to have copies of all payments made to satisfy the debt. Retain a copy of your proof of payment(s) with the signed settlement offer for your records. Ideally, you will want to keep this documentation with your tax returns given the time frame you need to keep them.
  • Never, Ever, Pay a creditor or collection agency in cash.
  • Think twice about paying a creditor or collection agency using a money order or cashiers check. Getting copies of these can be very difficult and time consuming.
  • There is always a possibility that one or two years after you have satisfied a collection account that another collection agency will attempt to collect on the same debt. Without the settlement offer and proof of payment you have retained for your records, you will face a very difficult legal position in trying to prove the debt has been satisfied in full.
• You are entitled to a free annual credit report. To review your credit reports for free, go to annualcreditreport.com. You want to ensure you review your credit reports once a year. Keep your information up-to-date to include mailing address, home and work phone number etc. to minimize the risk of past due creditors and collection agencies calling neighbors, friends, and family members in an effort to contact you.