Each and every day, the phone is ringing off the hook. You're scared and too overwhelmed to answer it because it might be a debt collector. You know you don't have the money to pay the bills you've fallen behind on – the minimum due is well above what you can afford.
However, continuing to ignore the situation won't make it go away. Here's how to negotiate with debt collectors.
Be Prepared to Explain Your Situation
First things first. We all have situations that cause us to get behind on our bills.
For many, it's health problems or the loss of a job. You want to have your story prepared so that you can let debt collectors know why you fell behind. Some will be understanding and work with you, while others won't care. However, you want to stick to your story and stand your ground.
Know How Much You Can Afford
You want to look at your budget and see what you can afford. If you have other debt that's current, focus on quickly getting out of that debt first.
Once you've paid off all current debt, you can move on to debt that's with debt collectors.
Make a list of all the debt in collections from smallest to largest and start saving up money to make offers to pay each debt off in full with a lump sum.
Offer to Pay Off the Debt for Less Than What's Owed
When you start requesting payoff amounts, offer a lump sum number well under the total amount that's due (like 25-50% of the total amount). Start low and work your way up. Once a debt has gone to collections, the person who bought the bad debt paid much less than what is owed.
If the debt collector accepts the amount as paid in full, get it in writing before you pay (a settlement offer), and then pay them via a cashier's check. Never give them access to your checking account!
If they won't accept your lump sum, tell them that it's all that you can afford and ask them what they're willing to offer. If you can scrape that amount of money together, then accept.
If you can't come to an agreement, then keep saving until you have an amount that you can both agree on to pay off the bad debt.
Work your way through all your debts until you're completely debt free (and free from the collectors!).
You want to take notes of people you speak with, the offers made, whether or not they agreed to accept the offer, etc. The more notes you have the better. You can even record the conversation, as long as the person on the other line knows they're being recorded.
If you're not sure all the debt that's gone into collections, you can check your credit report for free to find information on creditors and the amounts owed.
Understand the Laws
Last, but not least, you want to know the laws in your state. For example, some states do not allow debt collectors to garnish bank accounts for credit card debt. However, many companies will still make threats to do so. Know the laws so that you can report any threats the company makes that aren't legal.
Dealing with debt collectors can be a scary situation. However, ignoring the situation won't make it go away. These tips will make it easier to approach the situation and get the outcome you're after.
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