Almost 80% of Americans have some sort of debt. It could be from medical bills, personal loans, or payments for assets like a house or car. This large percentage shows that if you are dealing with debt, then you are not alone. Managing finances in ideal circumstances is challenging, and now we are going through times where economic hardship is affecting every person and every business. People everywhere are now either taking salary cuts, being furloughed, or are losing their jobs altogether. A sudden reduction or loss of income can cause people to fall behind in their bills and get into debt.
Unfortunately, if you do not pay your debts on time, then you will have to deal with a debt collection agency. Debt collectors are third-party companies that are hired by the lenders (like a credit card company) to ensure that they will get their money. Debt collectors are typically hired if a debt has not been paid in over 90 days.
Dealing with debt collectors can be a stressful experience – due to your situation, you may have not been able to pay anything towards your debt, and now you have someone calling you constantly to try and get money.
Even though debt collectors have a job to do, there are ways that you can handle them so you can protect yourself and create a plan to get back on the right track.
Do Not Ignore Them
If you have debt collectors calling you, you probably already feel shameful that it had to come to this. This feeling can lead you to want to ignore the situation. However, even though things may seem stressful, ignoring the situation will only make it worse. Not paying towards your debt at all (and ignoring them when they try to get the payment) will damage your credit score because it looks like you are trying to avoid paying anything that you owe. You may be stressed, but you need to face the situation.
Figure Out What’s Yours
Before you can develop a plan on how to pay your debt, you need to know the exact amount owed and to whom it is owed. When a debt collector calls asking for payment, the first thing you can do is request a letter detailing everything about your debt. Getting this information in writing is part of your rights, and this will show if the debt collector is legitimate or not (legitimate collectors have no problem sending you the detailed information in writing). In addition to the detailed letter, ask the collector for information on how to dispute the claim. Many times, people have been asked to pay back a debt that is not theirs, so you need to know how to challenge any errors you see on the report.
Know What They Can or Can’t Do
Debt collection is a job like any other – they have a goal, and they want to meet that goal. In this case, their goal is to get the money owed for the debt. That does not mean they can do anything they want (like bullying you or using illegal methods to get the money). The Federal Trade Commission created a Fair Debt Collection Practices Act that outlines your rights, the debt collector’s rights, and the legal ways to handle everything. Knowing your rights can help you turn a stressful situation into a more productive one.
Create a Payment Plan
Once you have verified the debt collector is legitimate and they have the correct information for the debt you owe, the next step is to start paying towards that debt. You can try and negotiate with debt collectors on how much you can pay on a weekly or monthly basis. You can also contact the National Foundation for Credit Counseling or the Financial Counseling Association of America. These are the two major accrediting agencies for credit counselors who are a resource for helping you manage your debt. There are for-profit credit repair companies out there, and each has pros and cons. However, those two agencies (National Foundation for Credit Counseling or the Financial Counseling Association of America) are part of the government with the sole purpose of helping you and your finances, so they are a resource that can be trusted.
File for Bankruptcy
Filing for bankruptcy is something most people do not want to consider because of the guilt that usually comes with it. No one wants to admit they have no money to pay others that they owe, so they don’t act when needed, which ends up making the situation worse. Filing for bankruptcy is a valid way to handle your finances and act as a fresh start.
Debt Collection is a “necessary evil” in our economy – they are here to make sure the money that is owed is eventually paid. However, that goal does mean they can do whatever they want to get your money. One thing to remember is to keep a positive mindset in the situation – do not feel guilty, shameful, or embarrassed if you must work with debt collectors. Addressing the situation, getting the facts, handling everything legally, and creating a plan allows you to turn a negative situation into a positive one.