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Monday, June 9, 2014

63. How to Deal with Debt Collectors

So you’ve come to the point that you cannot pay your debt. You woke up to the realization this has to be dealt with. The mountain seems to high to climb. Well, there is still hope.

Disclaimer: In no way is this legal counsel. Just some suggestions from what I've learned. Consult a lawyer and/or CPA for accuracy relating to the information below.

Sure you can negotiate the balances with your credit card companies as typically this kind of debt is unsecured. Important to note it will likely kill your credit score though.

I wouldn't go with a debt consolidation company but as you say "do it yourself" by negotiating directly with the credit card companies after getting some education on the "how to" of the matter.

Call them and ask to speak to an account manager or someone who can negotiate the cost of your debt. You may be able to pay 50 cents or less on the dollar owed. Remember to always be polite on the phone or in any correspondence. 

Whatever happens or is negotiated needs to be in writing.

DON'T GIVE THEM ACCESS TO YOUR BANK ACCOUNT. Pay with a cashier’s check or certified check. Keep your copies of the receipts.

If you tell the credit card company(s) you want to settle your debt they will probably freeze your credit card account. You might just want to close the credit cards accounts by calling them and if you do close the account ask them to send you written notification the accounts are closed.

If a portion of your debt is negotiated and forgiven it will likely be reported to the IRS via a 1099-C form. For example, a $2,000 payment to settle a $4,500 credit card bill -- you'll likely have to pay tax on an additional $2,500 in income next year.

Obviously seeking legal council is best as I suggested above... However, the Federal Fair Debt Collection Practices Act (or Wiki also explains the Act) is a law that outlines consumer rights and puts restrictions on creditor calls.

Here’s some information on the act:

1. No harassing calls can be made.
2. Calls must be between 8 a.m. and 9 p.m.
3. Repeated calling and name-calling are prohibited.
4. If a collector is harassing you, put him on notice that you are taping the calls to ensure that he follows the act’s stipulations.
5. You can stop unwanted collector calls at your workplace by sending a certified letter (return receipt requested) to the collector in question. Just ask them to stop.
6. You are even allowed to send a cease-and-desist letter requesting that they no longer contact you in any way except to inform you of legal proceedings. Use this only in extreme circumstances.
7. No collector may garnish wages or attach bank accounts without first suing and winning. (I believe the only exception is federal student loans that are in default.)

Legally speaking I believe you do have to make some kind of monthly payment to the creditor.

Realize it's likely going to be a long negotiation process. They credit card collectors going to be mean, rude, and down-right nasty at times. They will try to prey on your emotions. They will use anger, fear, hate, and even attempt friendship. They will try to bluff you and play on your ignorance. So educate yourself!

If you feel the conversation is becoming too emotional politely end the conversation and ask them to call you back when they are willing to treat you with respect. Talk to them once every two weeks. You will have to stick with your guns.

Hope this helps. Best wishes!


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