If you’re laboring under a load of debt, you have several good options. Unfortunately, it’s also possible to make some serious mistakes when dealing with debt.
Mistake #1: Ignoring your debts
While ostriches don’t really stick their head in the sand to avoid danger, this has become a metaphor for ignoring it. And one of the biggest dangers is to ignore your debts. This is because debt is something like having a bankruptcy in your public record. It just never goes away until you either file for bankruptcy or pay it off. And even a chapter 7 bankruptcy will not clear all debts.
Mistake #2: Making only the minimum payments each month
Lenders, especially the credit card companies, love it when you make just the minimum payments on your debts each month. In fact, the credit card companies’ entire business case is built around this. If you check one of your credit card statements, you’ll likely find that the minimum payment you’re required to make is about the same as the interest you’re being charged for that month. This means none of your payment is going against your balance. You could literally keep paying on a $10,000 credit card debt for 28 years – if you make just the suggested minimum payment every month.
Mistake #3: Not knowing your rights
One of the biggest mistakes you could make is to talk to a creditor or debt collector on the telephone without knowing that you have rights. Even honest debt collectors and Lord knows there are not many of them, will use tricks to get you to pay them. Most collectors work on commission so that if they collect nothing from you, they earn nothing. This means they have a huge incentive to try to intimidate you into paying your debt. For example, a debt collector might start calling you constantly – day and night. You can avoid this kind of treatment by knowing your rights under the Fair Debt Collection Practices Act.
Mistake #4: Not getting everything in writing
Never give any information to a debt collector or agree to pay a debt or start a payment plan without getting everything in writing. This is definitely a case where it pays to be careful. If a collector refuses to provide you with information in writing, it’s probably because he’s hiding something.
Mistake #5: Not understanding your options
Regardless of what a lender or debt collector may tell you, you always have options. You could send the collection agency what’s called a “cease and desist” letter to stop it from harassing you. Once you’ve done this, you could explore other options for taking care of your debts such as consumer credit counseling or a debt consolidation loan. Either of these will stop debt collectors dead in their tracks. For instance, if you choose credit counseling and have a debt management plan, the credit counseling agency will assume the responsibility for handling your creditors. All you’ll be required to do is send the agency a check each month.
Mistake #6: Failing to negotiate with creditors
Almost every debt can be settled and for less than what’s owed. You can almost always negotiate with a debt collector because his agency purchased your debt for pennies on the dollar. This gives the collector a great deal of latitude.
Credit card companies will also negotiate but if, and only if, you’re around six months behind on your payments. The reason for this is because most credit card companies sell debts after 180 days (six months) and they’re smart enough to know they can get more by negotiating with you then from selling your debt.