If you’ve fallen behind on one or more bills, debt collectors may come calling. Getting a notice from a collections agency can be stressful, and the calls that usually come with this process can create ongoing friction for you throughout your life. But reacting out of desperation without a calm plan to approach the problem can cause even more financial problems for you. Learn how to get debt out of collections by following these nine steps.
1. Don’t Panic or Make Stress-Based Decisions
First, don’t panic or make immediate stress-based decisions. Some people agree to payment arrangements they can’t possibly afford just to get the debt collector off the phone. Some aggressive collectors make threats about how they can collect the money that frighten people into desperate measures.
It’s true. If you don’t pay debt that you truly owe, the creditor can sue you and get a judgment against you. That gives them legal options to garnish your wages or freeze a bank account. But you can act calmly and rationally following the steps below to keep that from happening withoutagreeing immediately to payment arrangements that put the rest of your financial health at risk.
Likewise, don’t ignore the issue. You have rights, but the actions you can take to fend off aggressive collections have timelines. Hiding from the debt because you’re too stressed to face it typically makes the situation worse.
2. Educate Yourself About Your Rights as a Debtor
A number of debt collection laws exist to protect you. For example, the Federal Trade Commission prohibits threats or harassment from creditors, and debt collectors are limited as to where and how they can contact you. Understanding your rights under the Fair Debt Protection Act is important because it lets you understand what tools you have to handle collections processes in more proactive ways.
3. Gather Information About the Debt
Take a few minutes to gather what youknow about the debt. First, are you already aware of this debt and do you have information about it in your own records? Or, is it a debt you’ve never heard of, which could mean that it’s not actually something you owe? After checking your own records, check your credit report to see what information is reported about the debt.
4. Request Validation of the Debt
Regardless of what you find, request that the collection agency validate the debt. By law, creditors are required to provide a verification letter that includes, at minimum, information such as:
- The name of the original creditor
- The name of the collection agency
- The total amount owed
- Various legal statements about your rights as a debtor
But this isn’t always enough information to set your mind at ease that you actually owe this amount or debt. After receiving the verification letter, you can write a validation letter. You must send it within 30 days of receiving the original collection notice. If the collector receives a validation request, it must cease collection activity until it responds.
5. Dispute the Reported Collection if It’s not Accurate
The debt validation process can buy you a bit of time to consider your options and make a plan for dealing with a debt. It also lets you gather information to determine if the debt is accurate or still owned. If a debt isn’t yours to begin with, the amount or other information is incorrect, you’ve already paid it or it’s beyond the statute of limitations, you may be able to dispute it.
Disputing a debt notifies the credit bureaus that you don’t believe the reporting is accurate. The bureau is required to investigate the matter and remove the negative item on your credit report if the collector can’t substantiate the debt. Debt dispute processes can be long and complex, which is why many people turn to credit repair firms for professional help.
6. Make Arrangements to Pay Accurate Debts if Possible
If you find that the debt is accurate and is yours to pay, the best way to get out of collections is to pay the balance. If you can’t make a full payment out of your cash reserves, you might consider other financial tools. A debt consolidation loan lets you take out a current loan for the purpose of paying off one or more other debts. Benefits might include getting a collections account taken care of or reducing interest rates on several debts. If you’re dealing with credit card debt, you might consider a balance transfer credit card to help pay down what you owe.
7. Negotiate a Settlement With the Creditor if You Can’t Pay in Full
Those who don’t want to or can’t take out additional debt or pay a debt in full with cash reserves may be able to negotiate a settlement. This is when you agree to pay part of the balance and the creditor agrees to consider the account paid in full. Creditors are often willing to do this on old debt because the amount you owe may have been inflated by fees and interest.
However, know that if you negotiate a settlement, it may come with a tax burden. The IRS considers forgiven debt to be income. That means you might owe taxes on the forgiven amount next April.
8. Ge Professional Help Handling the Debt
If you’ve reached this step on the list but you’re still not sure how to proceed, consider reaching out for professional assistance. Firms, such as Lexington Law, provide full-service credit repair and dispute services. And if you’re really in a financial bind, consider talking to a bankruptcy attorney about potential options for restructuring debt and moving forward with more stability.
9. Move on With More Positive Credit
Whatever option you choose for dealing with a debt in collection, make sure to keep making positive financial choices as you move forward. By understanding your debt, your credit report and your options, you can pay down debt so you can enjoy the future—including retirement—with less financial stress.