When Payments are Late or Missed
As soon as you are late with a debt payment, your creditor notifies the three credit bureaus, and your score takes a dip. If more than one creditor is doing this, then the result is worse. Another dive can be expected each time you are late and each time a debt is turned over or sold for collection. You have now been doubled-dipped on the late or missed payments. To avoid the coming disaster, it is time to be proactive and take the steps necessary to get debt settlement.
The Process of Debt Settlement
If you decide to obtain debt settlement on your own, you need to be strong-willed, a skilled negotiator
, and have the time to spend in communication with each creditor. The steps are as follows:
- If your debts are still in the hands of the original creditors, chances are they are calling you, probably daily. First, tell them not to call you at work, because you do not need that additional aggravation and embarrassment.
- Do not promise to pay soon. You lose all bargaining position is you keep telling them you plan to pay. You need to tell them that you cannot make your payments and you do not know when or if you will be able to make them again. The creditor who thinks he may not get paid at all is much more willing to negotiate some type of reduction.
- You need to try to get a reduction in interest rate, a reduction in monthly payment, and a reduction in the total debt amount. All three are achievable, but you have to be persistent. Start your negotiation with total debt amount, and begin at 50% of the original debt. You will probably receive "no" for an answer, but, again, the longer the payment goes unmade, the more your creditor may be willing to compromise. Once you have settled on a lower total amount, begin to negotiate for a much lower interest rate and a lower monthly payment. These are easier to negotiate, because the creditor is not really losing, he is just going to make less. Individual negotiations will have to occur with each creditor, and this can be a time-consuming process, so be prepared.
Those Debt Collection Firms
If your creditor has already transferred or sold your debt to a collection firm, your approach will be a bit different.
- When they call, be certain to tell them not to call you at work. From this point forward, all communication will be only written, by registered mail, return receipt requested. And you will need to keep a copy of every letter you send.
- Write your first letter, telling them not to call you at home. As well, request a debt validation This buys you a little time and forces them to produce the original debt amount, name of creditor, date on which the debt was transferred or sold to them, and any additional fees, charges, or interest that has been tacked on. As well, request to know whether the debt has been transferred or actually sold to them. There is a big difference. If the debt has been transferred, any payment you make will go to the original creditor, after the collection firm has taken out their agreed upon percentage. If the debt has been sold to the collector, he has purchased it for pennies on the dollar, so the actual remaining debt is much smaller. You should begin negotiations at 35% of the original debt.
- If you should reach agreement with the collect, you MUST get this agreement in writing. Do not trust anything verbal (and you shouldn't be talking to them anyway).
If You Don't Have the Stamina
If you need debt settlement
and don't have the time or skill to get it done by yourself, employ the services of a debt settlement professional. There are plenty out there, as well as attorneys who advertise daily. Do the leg work and find one that is reputable and successful. Ask for references and check with the Better Business Bureau for any complaints. There are fees involved, so shop around. Read the entire agreement before signing any contract for services. The benefit of this option is that they will do all of the work for you, and you can go on with your daily life.
Your Credit Rating
Accept the fact that your credit rating
has been damaged. There is little you can do about it after you have been 60-90 days late or after debt has been turned over for collections. What you can do is work on repair over the next year by getting some secured credit cards, and having those accounts reported to the bureaus. Eventually, you will be able to get a new unsecured card. Charge a small amount each month and pay off the entire balance. Each time you do this, your score can jump as much as 40 points. Lenders who are considering you for substantial debt (home or car) want to see a perfect credit history for the past 12 months.
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