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Are there any options when you fall behind on your bills?
Coach Parkey joins us today to share ideas for dealing with collectors.
First thing’s first: Take care of the necessities.
We don’t ignore the debts, but there may be times when you have to make the choice between paying a bill or putting food on the table. The key, when dealing with collectors, is communication. It’s important that you don’t run from your creditors, but that you run to them. When you take on debt, there is a partnership between the lender and the borrower; there are expectations to be met and agreements to uphold. When something happens, in your control or out of your control, you may need to ask the lender to renegotiate the terms of that partnership and help you out in your financial crisis.
Communication is key, but it’s not always an easy process. A debt collector will play on your emotions and try to get as much as they can from you. After making that initial call, you may spend several months trying to negotiate with them. There will be regular calls, at least once a month explaining the situation to them.
Sometimes you may find a sympathetic ear simply by communicating your situation with the lender. It might take a few calls and conversations, but our clients have had interest rates decreased and fees waved simply by asking. A financial coach can be a huge help during this time by giving you the courage to face collectors and initiate these calls. A financial coach can help you with the language of dealing with collectors; they can keep you on task.
When a person is months and months behind on their debts, the lender may be ready to sell off your debt to a collections agency. A collection agency will buy bad debts for a fraction of the original amount, then chase you for the full amount. This is a good time to talk to the lender and settle that debt for pennies on the dollar. Scrape some money together and offer it as settlement.
A lender would most likely get more money working with you than he would from selling the debt to a collections agency. If you don’t have cash, they would likely put you on a new form of payment plan. This isn’t the best scenario, you will be paying more over a longer period of time, but it’s better for you and for them than not paying the debt at all.
Moral dilemmas often arise when it comes to settling a debt. Many people feel obligated to pay off the entire amount owed. After all, we signed the agreement and took out the debt. Our group, Coach Connections, would never tell you to avoid paying a debt. However, you may find yourself in a position of just not being able to make those payments. You’ve made decisions in the past that got you to this point, and often credit card companies have helped you get there. When it comes to a morality piece here, we, the lender and the borrower, each have a part to play. The idea of settling, is to come to the table with something to offer that will make both parties happy. The credit card company does not have to accept your offer. They can choose whether to modify the terms of your agreement or not.
The credit card company has accepted your offer and you’ve thanked them for their help. Now the next step is to get the new terms of the agreement in writing along with the amount of the original debt and the amount of the settlement. Never agree to allow them to draft from your bank account. After receiving the new agreement in writing, send a certified check. (If they insist on drafting, open a separate account and put the money in there for them to draft.) You will want to overnight the check to them with confirmation that they received it. Staple a copy of the agreement, the bank check, and the confirmation together; you will want to keep these documents for the rest of your life.
We’ve got the process down on dealing with lenders and collectors, now to choose who we deal with first. There are many variables to look at when making this choice. Some collectors are very aggressive, and that may come into play when choosing who to deal with first. There is also the variable of how much money you have to negotiate. You may want to chase after the largest debt to see if they will work with you. Do not try to negotiate with all your collectors at the same time.
It can be a very scary situation to have to deal with collectors. This will take some take to work through. The person you deal with on the phone will try to mess with your emotions and will try to get you to change your decisions. It’s their job to get as much money from you as they can. You have to maintain control of the conversation, and you much remember that you only have so much money you can bargain. Don’t commit to something you cannot do. Don’t give up hope. If you do not ask, the answer is always no.
Up until age 40, Parkey Thompson was living with no real financial plan. He discovered he was living the American dream, which can actually morph itself into the American nightmare. He and his wife were deeply in debt, and their monthly paycheck was not enough to cover his monthly payments and basic needs. They decided to make the change and get on a real plan.
Over the next 26 months, he and his wife payed off everything but the mortgage. They stuck to the plan and, in 2007, paid off their house!
