Most of us go into panic mode when we receive notices from bill collectors and collection agencies. I know I do. Although it is upsetting, my sense is that most of us are not aware of the risks associated with our unpaid debt accounts. Creditors have many options at their finger tips to get their money. This article is meant to ease your fear about your creditors and to put you in the driver’s seat as you get out of debt.
The biggest tactic used in getting past due money is wage garnishment and seizure of property. This method is based completely on exploiting your fear. The collection agencies usually fail to point out that they need to go to court first to be able to do anything to you.
It is possible for a creditor to take you to court and obtain a judgment against you allowing them to garnish your wages and possibly put liens against your home. While this could happen, the chances are small that they would go this far. It is too much time and expense to try and collect from you in this way.
My sense is that most of us jump too quickly with the collection agency in paying the debt that they are calling about. I can only imagine how much money has been paid unnecessarily out of reacting to fear. What’s not to believe when it comes to hearing from the collection agent’s threats of impending doom and gloom if payment isn’t made immediately?
Hold on however. If you get a call, take a breath, you have options. The first thing you need to do is debt validation. Make sure that it is a valid claim and that it belongs to you. Given my years of experience in the mortgage and debt settlement businesses, I have seen thousands of mistakes on credit reports and have concluded that the credit reporting system in the US is flawed. Ask for the debt to be confirmed in writing and ask for copies of where you signed the contract or agreement that caused the debt.
You may also want to check the statute of limitations for your State. There are limits to how long debt against you can be collected. Contact the attorney general in your state for this information. My recommendation is to call them. If the debt has been on your credit report for over 7 years (most cases), the derogatory and the collection related to it should disappear from your credit report. If the debt has not been paid for 7 years, then it can no longer legally be on your credit report. You can challenge the item and it will come off. (How To Dispute Items On Your Credit Report) If the debt is removed from your credit and the statute of limitation is up on this debt, you should be in the clear. Bankruptcies can remain on your credit report for no more than 10 years.
Know the type of debt you have. It makes a difference in how you proceed with getting out of debt. There are two types of debt, secured and unsecured debt. Secured debt includes homes, automobiles, and taxes. Unsecured debt includes checks, student loans, personal loans, medical bills, credit cards and department store credit cards. It is unusual for secured debt to be settled. If you can’t pay these bills the creditor will most likely foreclose on your home or repossess the automobile. If either of these happens be prepared for the possibility of additional money being charged to you if they cannot sell your home or car for what you owe them. This debt you may be able to settle.
With unsecured debts, there is nothing “attached” to the loan for repayment, therefore there is nothing for the creditor to repossess. With nothing to take from you that they can sell, the creditor is more likely going to settle this debt. Make sure to document everything in writing.
Some good rules of thumb to follow when in the settlement process;
1. Don’t talk on the phone to a collection agency. If you get on the phone with them they will try to intimidate you so they can collect more. Remember, they collect more, they make more.
2. Get everything in writing first before you open your checkbook.
3. Keep good records; don’t expect the collector to remember what you had agreed on.
4. Send all correspondence by registered mail.
5. Keep copies of everything
6. If you do call the collector, keep a log of whom and when you called.
7. Follow up a call with a letter.
8. Penalties and interest are typically made up amounts of many added on by the collection agency to increase profits.
9. Time is on your side. The longer you can keep them off your backs, the better settlements you can work out.
10. Don’t be eager to settle. Take your time. If you are trying to buying a home and you need to have it off your credit report, make sure they don’t know about this.
Remember the collection agency is not your friend, and don’t be intimidated by the creditors. Usually your worst fears about what can happen won’t. I hope this information will save you thousands of dollars when settling your debts. Read about or to start a debt settlement plan.
Article written by: Dave Mason. Dave has been in the Real Estate, Consumer Finance and Mortgage industry for nearly 18 years. He has a degree in Finance from the University of Arizona.
