Losing sleep over credit card or other debt that you can’t repay? You’re not alone if you are taking financial stress to a new level. Millions of Americans find themselves facing those dreaded collection phone calls and foreboding letters in the mailbox. It doesn’t have to be that way, though.
Paying back debt, especially revolving debt like your credit cards, is stressful anytime, but when you’re also dealing with a job loss or other financial setback, it can really affect your health, your mindset and, of course, your credit rating. Here are some of the best ways to handle those problems, according to several personal finance coaches we spoke to.
What You Don’t Want
The first thing you don’t want to do is ignore the problem. When you do, it simply extends the length of time you’ll stress over it. Meet it head on so that you can get a solid game plan mapped out. Just knowing you have a plan of action can help tremendously. Debt collectors can be a prickly group of folks, but it’s important to not let them get the best of you. An even voice, patience and a genuine attempt to hammer out a repayment plan should be your approach.
Also, if any of your accounts – whether they’re medical debts, car loans or credit cards – are in the hands of a bill collector, it might be worth your time to ask if a settlement is available. This is a reduced amount that you can pay and have the account settled. It can still show up on your credit report as “settled” versus “paid”, but that might be a small price to pay to finally get out from under the debt. You’ll have to give a little too in order to get the settlement.
Often, you’ll be required to pay that reduced amount that very day (though most will waive that and allow you to hold off until your next payday). You likely won’t be able to set up a payment plan for the reduced balance. It defeats the collector’s purposes. Be sure to ask the debt collector to email you the terms of the settlement so that you have proof of the details should you need them someday. They must provide it or else find themselves out of compliance with federal banking laws.
But what happens if the debt is old and you begin receiving collection calls? At this point, you’ll want to request proof of the debt from the creditor. And, again, by law, the collection agency must provide it. If, after you receive it, the date is older than 5 or 7 or 10 years (each state has its own timeframes), then you request the debt collector not contact you again because the statute of limitations has expired. The same goes for an “out of the blue” call from a collector. If there’s been no efforts to collect the debt in several years, a collector can’t simply decide to demand it now.
Of course, you’re ready to get the financial stress behind you, but before you give a collection agency any kind of financial information, such as your credit card number or bank account information, give yourself a bit of time to ensure it’s the best route. You might even wish to contact your lawyer, depending on the size of the debt.
Ever heard of “zombie debt” or “zombie accounts”? These or old debts that the statute of limitations has run out on. Often, several credit agencies will pursue the same accounts and the minute you agree to make payments or even acknowledge it’s your debt, the clock starts over on your statute of limitations. It’s not unusual to have multiple companies all attempting to collect the same zombie debt, and if you’re not careful, you could end up having to repay them all. Again, this might be a good time to run it by your attorney.
Understanding the law goes a long way, too. Most consumers don’t know what’s legal or illegal when it comes to debt collection practices. Did you know debt collectors can only contact you between certain hours of the day? And if one contacts you at work, you can request they not call you at your place of employment? If you do, you should know that they are immediately barred from contacting you at work. Make no mistake: many debt collectors fall out of compliance with the law hundreds of times a day. They’ll continue to do that until and unless a consumer lets the collector know he’s not dealing with someone who doesn’t know a consumer’s rights.
Several laws are in place to protect those consumers, including the Fair Debt Collection Practices Act. This is especially important if you have credit card debt since it’s considered revolving debt. That’s another great way of easing the financial stress: you have an opportunity to learn more about your rights as a consumer. It’s actually quite empowering. Don’t allow a collector harass you and threats of jail time is most certainly abusive. Collection agencies are historically known for harassing consumers. If you can’t remedy the situation with a debt collector, you might wish to file a lawsuit. You can also visit the Consumer Financial Protection Bureau site to discover just how many complaints are filed – that will most certainly provide perspective.
There are few things more exhausting that financial stress. Formulating a game plan, not avoiding the debt collectors and sticking to any payment plan is the one sure way of keeping your anxiety in check. Seeking out financial counseling is another great piece of advice; however, always remain vigilant of any free online sites that promise to give financial advice, but that are, in fact, linked to collection agencies.
Have you ever had to deal with debt collectors? If so, were you ever threatened or told you could end up in jail?