When financial debt has become too large to manage, there are several options available. Help with debt problems comes in the form of bare bones budgeting, credit counselors, debt consolidation or as a last resort, bankruptcy. Which option is chosen depends on the amount of money owed, the confidence of the debtor and the plans they have for the future.
DIY
Some debts are manageable with the right knowledge. First, make a detailed household budget which includes everything from groceries to house payments. Second, look for ways to eliminate or reduce these expenses. Make a note of the amount, if any, these measures save.
Next, make a list of income sources. If the amount coming is less than the amount going out, items on the expense list must be eliminated or reduced until the two balance out. The next step is to find an additional source of income. Any money saved or earned beyond what is required to make ends meet will be spent on reducing debts.
To make budgeting and managing money easier, get a software program for this purpose or do research on the subject. When a realistic budget is established, it will be clear how much extra is available to make monthly payments. Now is the time to contact all creditors.
Contacting creditors as soon as trouble arises is the best strategy. Credit companies and other lenders will want to work out a payment plan or other arrangements to keep the debtor as a customer. Real problems begin when the debtor ignores their problems and makes no effort to resolve the situation. The issuing company will then send the account to collections.
Dealing with Collectors
There are two stages to collections attempts. The first is carried out by the creditor’s in-house department. The second is carried out by a third party agency who buys the debt for a fraction of its worth. When the account is in-house, there is still a small chance it can be reinstated and long term credit score damage averted. Working with the company to establish a steady payment plan is the best action in this case.
When the account has been sold to a third party, the situation becomes simpler, yet more damaging and confusing. By the time a debt reaches a third party agency, severe damage has already occurred to the individual’s credit score. The only way to erase this debt and start fresh is to settle with the collectors and get a receipt of payment. The confusion arises when this party calls for the first time, from a company the debtor has probably never heard of.
The phone call may mention a debt the person knows they are responsible for, but how can they be sure it is safe to pay this unknown party? The answer is to require validation. Ask for the caller’s name, address and company, and let them know a request for validation is pending. Send a letter demanding proof of their right to collect before paying anything.
Of course, it is a rare occurrence for a debt to just disappear. Eventually they will all need to be paid, even if it takes several years to do so.
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