Is your debt of OVER $1,000 to an original creditor?
If you are being “dunned” (chased) by an original creditor (like a store or a credit card) for a debt of more than $1,000, the best thing to do is to face up to it and figure out a way to settle it.
We say this because debts of this size are usually worth chasing and the creditor, or a collection agency, is likely to keep after you – even to the extent of taking you to court – to get their money. In some cases your wages could be attached. Or you could be forced into bankruptcy. It is almost always better to face up to the problem and try to solve it.
Here are some suggestions:
- If you can raise any cash by borrowing from family or from a bank or other institution, make them an offer to settle now, for cash, for 50 cents on the dollar. They will almost always give you some sort of discount for cash up front. Ask them to make sure they tell the credit reporting agencies that the debt was settled. (You can be sure that they have already reported your delinquency, which has a significant negative impact on your ability to get credit.)
- If you do not know how you will ever pay it, and especially if you have debts like this with more than one creditor, the best thing to do is go to a good, non-profit credit counseling agency. But be careful!!! Some of these agencies, including some that advertise on TV, are, in my opinion, not very effective at what they do. A few are outright frauds.
The credit counseling agency gives you information on a national chain of credit counseling agencies with which I have had experience. I have found them to be very competent and effective in what they do.
Here is what they will do for you:
- They will go over your income and expenses and help you figure out how much you can afford to pay monthly to settle your debts.
- They will contact all of your creditors and make arrangements to pay them over time. In most cases they can stop all interest and late fees on the existing debt. In some cases they can reduce past interest and late fees.
- Every month you will send them a check for the agreed upon amount and you will then divide it up and send a portion to each of your creditors until everything is paid off.
- As long as you make payments the creditors will not bother you.
Some things you should NEVER do when dealing with creditors.
- Give them your checking account number. Even if they tell you they will take only one payment, they are very likely to keep drawing out money until their dent is paid. This can wreak havoc with your finances. Your checks will start bouncing.
- Make a payment without a deal. They give you the impression that if you just send them $50 or $100 now, they will go away. Nothing could be further from the truth. Once they know that a phone call can get them cash, they will start calling more often. Never send money. Always offer to negotiate a payment plan. Push for stopping of interest and late fees in return for a monthly payment. Tell them they will get NO money unless they make a reasonable payment plan deal with you. They don’t legal fees any more than you do, and if they think can settle the account without doing calling the lawyers, they will do so.