Debt Settlement

Are you drowning in debt? One of the ways out is through debt settlement. Debt settlement is a situation where a creditor will agree to clear your debt if you agree to pay a small percentage of what you actually owe. A creditor would consider this where there is a threat that you might go bankrupt and not pay anything at all. But beware that creditors are extremely reluctant to agree to such settlements especially if they have been receiving payments on the account and see any possibility of getting most of the payments. It is difficult to say exactly when a creditor would agree to such a settlement, but he chances increase as the number of months without any payment start to increase.

The best way to go about negotiating a debt settlement is by doing it yourself. Engaging the services of a debt settlement firm is usually costly and in most cases ineffective. Infact in some states it is illegal for companies to manage debt for a profit. Do your research, start saving to make the payment for the settlement and contact the creditor yourself or through an attorney.

Couple of things to keep in mind before considering to go ahead with a debt settlement option, firstly the creditor could sue you for the amount if they feel you are trying to avoid paying when you actually can and second, and amount over $600 that a creditor for goes is taxable which has to be paid to the IRS.

Debt Consolidation

Debt consolidation, as the term suggests, means consolidating all your debts into one. This is done by taking out a single loan to pay of all others. There are number of factors which should be taken into consideration before doing so.

Interest rate, ensure that the interest rate you will be paying is lower than what you are paying for the current loans. Consolidate only the debt which have higher interest rate, normally these would be credit card debts which have high late payment fees and interest rates.

Shop around for the best deal, do not go for the first offer that comes along. Look for the consolidator which will charge you the lowest interest rate. Also ask about the possibility of discounting the amount of the loan if you are in danger of bankrupcy.

It would be better if you consolidated your debt as soon as possible, because as your credit rating falls the interest rate you need to pay will rise. So the sooner you consolidate your debt the better the interest rate since your credit rating would not be as bad.

Consider taking a secured loan since they normally have a lower interest rate as they are tied with some property as collateral which the lender has the right to sell incase of non payment. This will also motivate the borrower to make payments.

Try to pay off the loan as fast as possible, the longer the duration of the loan, the more costly it is. The monthly payments would be higher if paid over a shorter duration as compared to a longer duration loan but bear in mind this also means that you are paying more interest over a longer duration.

Change your life style, debt consolidation by itself will not help you get out of your debt. Live withen your means, i.e. spend what you earn and save some. 

Debt Collection Methods

To effectively deal with debt collectors you need to be aware of the various collections methods they use.

Telephone Calls. Debt collectors may call at all odd times of the day to harass you. They may even use threats and abusive language to pressure you into making payments. It might be a good idea to record all calls with debt collectors if possible.

Registered Letter. At times you might be sent a registered letter for which you will have to sign a receipt. Don't let this bother you, a registered letter is no different from a regular letter and has no official status.

Telegram. A telegram may be used at times by debt collectors to emphasize urgency, once again, don't let this pressure you, it is only another method of communication which should not be allowed to influence your decision making.

Follow Up Draft. Another method used by debt collectors to harass debtors is to send follow up drafts, some times they might send it from different banks hoping this would make the debtor more stressful and worried.

Installment Collection. Debt collectors sometimes might offer an option to make payments via installments, this might be a good times to seize the opportunity to easily pay off the debts if possible.

Offer of Concession. If a debt collector makes a concession offer where you are only required to pay part of the debt and the rest will be fore gone, this is a great opportunity to take up if you have the means to do so.

Credit Threat. At times debt collectors might claim to be members of credit associations and threaten to report any bad debt. If a collector makes such claims do not take his word for granted. Always request for proof to support such claims.

Black List. Debt collectors sometimes threaten to release a black list for circulation. Always be weary of such threats and check with a lawyer if it is legal to do so in your state since in some states it is considered blackmail.

Writing to Friends. Another method used by debt collectors to pressure debtors is to threaten to contact friends or relatives. You should let the debtor know that you can take him to court if he ever reveals to anyone that you owe debt, thus putting the debtor on the defensive.

Awkward Calls. Quite often the debt collector might harass you at your work place or other in appropriate places such as gatherings etc. You must be aware that it is against the law for debt collectors to bother you at the work place especially if your employer does not approve. Make the debt collector aware of this and emphasize the point that you are not afraid of taking them to court if they continue to do harass them.

Fair Debt Collection

Are you being harassed by debt collectors? Well you should be aware of your rights under the Fair Debt Collection Practices Act. A debt collector must treat you fairly and is not allowed to use certain methods of debt collection.

A debt collector may only contact you between 8am and 9pm unless you agree otherwise. He may also not contact you at work if he knows your employer does not approve. If you have an attorney he must contact him, instead of you. If you do not have an attorney they are allowed to contact other people, though not more than once, to find out your where abouts and contact details but they may never reveal that you owe money. 

After a debt collector contacts you, he must send you a notice within 5 days giving details about your debt. If within 30 days of receiving the notice you send a letter stating that you do not owe any money he may not contact you unless he can prove otherwise.

Debt collectors may not harass anyone they contact by way of threats, harassing phone calls, verbal abuse or by revealing confidential information.

They may not make false or misleading statements such as misrepresenting themselves and implying anything other than what is fact.  

If you want a debt collector to stop contacting you, you can send a letter asking him to stop after which he is not allowed to contact you anymore.

You have the right to sue a debt collector if you feel he has violated the law within one year of the violation.