Being in Debt is a Way of Life
Yes, the vast majority of us are in debt. We have mortgages, car payments, student loans, credit cards, personal loans, medical bills, and other bills which we pay monthly. Generally, financial analysts distinguish between "good" debt and "bad" debt, and the consumer should as well. Good debt is that for which there is some asset. For example, a mortgage is a "good" debt, because it is assumed that, as one continues to pay that mortgage, the home increases in value, and that when the debt is paid off, there will be an asset that is still valuable. A car loan can be "good" debt if, after paid for, the car still has value and the consumer still drives it. Even a student loan can be "good" debt if it has resulted in a good career with advancement potential. Bad debt includes things like those pesky credit cards with high balances requiring only minimum payment. There are usually no long-term assets from the purchases on these cards, because they are used for clothing, gas, vacations, gift shopping, etc. Balances are high, minimum payments go primarily to interest, and many will be in debt for their entire lives. This is no way to live, especially if you encounter circumstances that result in loss of income (illness, job loss, etc.) or if you have become so overburdened with debt that you are now missing payments. If you are one of the 70% of Americans who is overwhelmed with debt you cannot pay, and you are wondering when the right time to settle all you debt loans is, the answer is now, and you can learn the process quickly.
When You Have Missed Payments
If you have missed payments, your creditors are calling you, perhaps at home and at work. You keep putting them off by telling that "soon" you will have some money and will get a payment in then. Stop doing this now. Do the following:
- Tell the creditor to stop calling you at work. You do not need the embarrassment and the harassment there.
- When the creditor calls you at home, paint your financial picture as serious. Tell him you are broke and that you have no idea when you will ever be able to make a payment. Your creditor must believe that the situation is serious or you will not be able to reach settlement with him.
- If you are 60+ days late, your creditor will probably be willing to negotiate with you on interest rate, lower payment, or reduction in overall debt amount.
- If you begin the negotiations, your creditor will say "no" at first. Be persistent. While you may find the prospects of "collection," garnishment, or court action scary, understand that these things occur only after longer periods of time, so you do have some power right now. If you are assertive, start negotiations at 50% of the original debt and a 5% reduction in interest payments, which will reduce your monthly payment drastically. Once agreement is reached, ask for it in writing, preferably by putting the new debt arrangement on your next statement.
The Collection Firm
Today, most credit card companies transfer or sell debt to collection firms once the debt is 120+ days old. You now have new people calling you. Follow these steps:
- Tell them not to call you at work.
- Send a registered letter (return receipt requested) telling them not to call you at home and asking for a debt validation They will need to respond in writing, giving you the name of the original creditor, the amount of the original debt, and any additional interest or fees which have been added to the original debt. Look at it carefully. You may be able to tell whether this debt has been merely transferred or sold.
- If the debt has been transferred, the collection firm is working on a percentage basis. Anything collected will give them some profit. If the debt has been sold, however, they have paid pennies on the dollar, and you are in a great negotiating position.
- You have every right to negotiate a reduction in debt amount with collection firms and should being at about 35% of the original debt. If you do reach a settlement agreement, get it in writing immediately, along with the new payment arrangement
Not For the Meek
Debt settlement negotiations are not for the meek. If you do not feel that you are assertive enough to stand firm and be aggressive, get a professional to do it for you. There are lots of debt settlement companies and attorneys who do this for a living. There will be fees involved, but they will be well worth the reduction you can get.
Bankruptcy is another debt settlement process. If you should opt for this type of settlement, you will need a lawyer, and he can advise you relative to which type of bankruptcy
is right for you.
Your Credit Rating
Your credit rating began to decline as soon as you were late with payments. It will decline more if the debt is turned over to collections
. Bankruptcy will seriously damage it for a while. There are steps you can take to bring this back up, but it will take time and solid responsibility with regards to meeting future debt obligations.