If one or more of your debts has gone to a collection agency, we don’t have to tell you how nasty things can get. Debt collectors are generally paid on commission. So, if they’re unable to collect your debt, this is basically money out of their pockets. This provides a powerful incentive to harass you until you pay.
There are certain things debt collectors are prohibited by law from doing such as contacting your employer without your permission or calling you early in the morning or late at night. Once you have been contacted by a debt collector, you can send the company a cease and desist letter demanding they stop contacting you. When you do this, they are allowed by law to contact you only once more to either tell you they won’t contact you again or to inform you of what legal action they intend to take, such as suing you. However, in practice, a debt collector can continue harassing you because your only recourse is to file a complaint against the company with the Consumer Financial Protection Bureau or to file a lawsuit of your own.
You could reduce the amount you owe
The only good news if you’re being hassled by a debt collector is that you can negotiate a debt collection settlement. This means you might not pay the total amount you owe, but instead, you pay 50% or even less. Your credit report would list this as negative information, but it would at least show that you paid as much of the debt as you could. Your credit report will no longer show your debt as “outstanding” but as “settled,” “settlement” or “settled for less than full balance” — depending on the individual credit bureau. If you’re not familiar with the three credit reporting bureaus, check out TransUnion, Experian and Equifax.
Before contacting the debt collection agency, calculate how much you can afford to pay by carefully reviewing your budget. The goal here is not to offer or settle for more than what you can afford. Of course, when you contact the debt collection agency, you will want to offer less than this amount. And when you begin negotiations, make sure you don’t disclose any information about your bank account, references, or employment.
If you can negotiate a settlement, the next step is to request that the debt collector remove all information from your credit reports related to the debt being settled. While the collection agency cannot remove any negative information that was added to your credit file before it received the debt, it can remove any information they added to your report after getting the debt. Next, go online and review your credit reports to make sure the collector has removed the negative information.
This will likely be your final step—getting a written agreement before paying the collector anything. In fact, you might want to hire an attorney who does consumer law to review the settlement agreement that you’ve reached. In either event, the agreement should include what you have agreed to pay, whether you will pay it over time or in a single sum, and when the payments or the lump sum payment is due. It should also disclose whether you will make the payment via a cashier’s check or an electronic funds transfer. Do not give the collector your personal check as this will give him or her all the information needed to sue you and take money out of your account.
Your settlement agreement should also include any debt concessions that have been made by the collection agency and any conditions that would violate the agreement and the consequences if a violation were to occur. Don’t sign it until it contains everything to which you agreed to and you fully understand the document. Make a copy of the agreement for yourself after signing it and put it somewhere safe.
If the collector refuses to negotiate
If the debt collector won’t negotiate, your best option would be to contact the initial creditor that sent your debt to the collector. That creditor might be willing to compromise with you. You could also suggest to the debt collector that if he or she refuses to settle, you will be forced to file for bankruptcy. This could motivate them to negotiate and settle your debt for less than you owe.
If you don’t feel you’d be a good negotiator
If you don’t feel comfortable negotiating with a debt collector, your only recourse would be to hire a consumer law attorney to do it for you. Of course, this may not be worthwhile unless it involves a very big debt.
Hire a debt settlement company
If you haven’t been able to make payments on multiple debts – whether they’ve gone to collection or not – an option could be to hire a debt settlement company. Companies such as National Debt Relief have counselors who are experienced at debt negotiation, have good working relationships with lenders and can almost always negotiate better settlements than you could do yourself.
Working with a debt settlement company could put a halt to phone calls from your lenders and any harassing phone calls from debt collectors. You will be required to send the money to the debt settlement company each month that you would’ve paid your creditors. The company should deposit this money into an escrow account that you control. When and if they successfully settle a debt, they will request that you release the money to pay for it. It’s likely there won’t be enough money in your escrow account to pay for all your settlements. When this is the case, the debt settlement company will offer you a payment plan. Assuming you accept the plan, the process can take you anywhere from 24 to 48 months to complete.
How debt settlement companies charge
The one thing an honest debt settlement company won’t ever do is force you to pay any upfront fees. Instead, they will either charge you a flat fee for their services or take a percentage of the money they save you. In either event, you will likely pay less than if you were to pay off the total debt. In many cases, a debt settlement company can settle your debts for 50% of what you owe. Even after their fees, you could end up paying less than the total amount of your debts.
Before signing up for a debt relief program, be sure to do the math to get a good estimate of how much it could cost you. Always get everything in writing and make sure you understand any documents you are required to sign.