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Options when your bills go to collection

Dealing with debt collection agencies is a stressful and sometimes embarrassing situation. No one likes to admit that they don't have enough money to meet their financial obligations. If some (or all) of your overdue bills have already been turned over to a debt collection agency, you have little chance of negotiating with your actual creditors. This is why it is so important to notify your creditors immediately when you know that you cannot pay your bills. Most companies will be willing to work with you to arrange a repayment schedule that you can afford. Ignoring your financial situation will only make matters worse.

If you are now saddled with overwhelming credit card debt or major medical bills and have not spoken directly with your creditors to explain the situation, a collection agency will probably be contacting you very soon. Many collection agents try to use scare tactics in an attempt to get you to pay the money you owe, no matter what your personal situation might be. Stay calm when dealing with debt collectors. And remember- there are choices available to you.

Individuals who are dealing with debt collection agencies have the following options. You should carefully consider your personal financial situation before agreeing to or committing to any of these suggestions.

1. Negotiate a debt settlement with your creditors.

This is a viable option for many people. Here are some things to consider when doing this:

  • Prioritize your bills. Your first consideration should be the fundamentals such as rent and food. Don't agree to pay off a credit card bill if it means you won't be able to pay the rent (or mortgage) or buy food.
  • Keep accurate records. Note the date and time of every phone call and details of the conversation. Insist on written confirmation of any agreement. Never send any money until you have a legal, written agreement in hand.
  • Be a tough negotiator. Go over your living expenses so that you know how much you can actually afford to pay in a settlement. Always offer less. A common baseline is around 25% of your total debt. It's important to stay focused and in control to get the results you want.

2. Hire a debt negotiator.

If you choose not to deal directly with the debt collection agency, you may want to hire a debt negotiator to do this for you. Take the time to do some research before signing on with a specific company. Reputable credit and debt professionals generally rely on past clients for referrals and recommendations. Be wary of companies that advertise or solicit business through telemarketing, television ads, or spam emails.

Make sure you have a complete accounting of the fees you will be charged and how they are calculated. Again, all the details of the company's services should be in writing and given to you before you sign any type of contract.

For extra security, contact your state Attorney General's office or website to find out about possible consumer complaints or lawsuits involving a specific debt negotiating company. Also check with your local Better Business Bureau for additional information.

3. File for bankruptcy.

Bankruptcy can provide you with a fresh financial start, but it isn't the answer to every monetary problem. There are some important things to consider when deciding whether bankruptcy is the right choice for you.

Bankruptcy can do the following:

1. It can stop the foreclosure process on your home. It allows you time to catch up on any missed payments.

2. It can stop wage garnishments by your creditors.

3. It can absolve you from legally having to pay most or all of your debts. Your debts are considered “discharged” when your bankruptcy is finalized through the Court.

4. Creditors are no longer allowed to contact you about your debt- this means no telephone calls and no written notices.

There are two types of bankruptcy which are available to you. The first is a Chapter 7 bankruptcy. In this case, all debts which are not secured and are not disallowed from discharge are canceled.

The other option is called a Chapter 13 bankruptcy. In this instance, your debt is not eliminated, but rather reorganized to allow you to make reasonable monthly payments over a period of 3-5 years.

Bankruptcy is one option available to you when you are faced with overwhelming debt. However, it is a very serious decision to make and has a long-lasting impact on your credit (it remains on your credit report for ten years). Explore all the possibilities available and determine the one that is right for you.