Do you have an old bill that you still owe? Did you not pay your credit cards and now collectors are coming after you? Is your credit score destroyed because of these old debts? If the answers to any of these questions is yes then you are not alone. Millions of Americans have bad debts that they still carry with them.
These debts maybe someone got in over their head and couldn’t pay them. It could be that you lost your job and the credit cards were the least of your worries. It could be that maybe you thought you paid the bill and you really didn’t. If any of this or other applies to you hopefully this post will help a bit.
Full disclosure on this one I have never missed a payment on my bills. I have never had a debt collection call. But I have done one of those debt consolidation companies before (big mistake by the way and I will explain why in just a bit). So a lot of what I have to say here is actually info from other friends who have to go through this or just knowledge I have gleaned from listening to other financial advisers, reading blogs, etc. So I hope this helps. Believe me I have friends who have gone through this and are going through this. It isn’t easy.
Steps to Resolve Old Debts
Step One: Figure out if you have any old debts to begin with. If you have any old debts these are probably going to be on your credit report. The federal government has now made it law that everyone is entitled to a free yearly credit report from one of the three credit agencies–Transunion, Experian, or Equifax. To find out your credit report go to Annual Credit Report.com or you can also sign up with Credit Karma (which I use) to access your credit reports as well. Both places should have any specific old debts that have gone to collection agencies or not. Also, the contact information for those collection agencies should be on the credit report.
Step One-A: Btw, if you know that you have unpaid bills that haven’t gone to a collection agency then you can try to set up a payment plan or something with your utility company or credit card or whatever. If you know that you have these bills it is best to contact the company, explain your situation, and see if you can work something out. This is especially true if it is your utilities. You don’t want your power to go out when trying to cook dinner. Utilities, Food, and Shelter come BEFORE paying the credit card or even the car. If your car gets repo’ed so be it. You can always walk, hitch a ride, or take the bus. I know you need to work and people need transportation, but food, lights, and shelter kind of win out.
Step Two: Contact the agencies that have your old debt. Most likely those old debts you have were charged off from the company and sold to a debt collector. A charge-off is essentially where a company writes off the bad debt. However, that doesn’t mean you don’t have to pay it. It basically means they have sold that debt to someone else. You still owe it, but it is in the hands of someone else. When you contact that agency (and most likely they have sent you a notice or two) you need to verify how much money you owe. You can typically request that be sent through the mail or an e-mail. DO NOT give them access to your checking account or any money. DO NOT DO NOT DO NOT DO IT!
Step Three: Figuring out how to pay them. So you have these old debts, you have contacted the collection agency or they have contacted you and you want to resolve this. So here are some things you might do. First, if you have the money to pay the debt in the first place you should pay it. NEVER EVER not pay your bills just because you don’t want too. Not paying your bills should only because you don’t have the money. If you have the money you have a moral obligation, in my opinion, to pay the debt.
However, if you are like a lot of people and don’t have the money you can try to negotiate with debt collectors. When collection agencies get old debts they buy it for pennies on the dollar. In other words, if you owed $1000 they probably bought that debt for $100 or $200. Everything above that is profit. But they are going to try to get you to pay the full amount. Again, if you have the money you should pay it. But if you don’t then here is what some people recommend (including Dave Ramsey). When the collection agencies contact you or you contact them and confirm the amount owed it is time to negotiate with them. So the collection agency may demand it’s $1000. However, you might have only $500. Offer them the $500 to resolve the old debt.
Now it is probably going to take you a lot of phone calls and hassles to resolve this. They are going to tell you they will sue you. You are a bad person, etc. And they could sue you. I mean it is their right to do so. However, unless you owe a few thousand dollars they are most likely not going to sue you. It would cost them to much time and money. So if they eventually play ball and negotiate offer them a fair settlement. Don’t try to lowball them and so forth. I mean you did have an obligation to pay this money. Thus, I think you need to be as forthright as possible. So if they will take $500 or $400 or whatever you negotiate with a debt you need to first GET IT IN WRITING.
The collection agency or bank or whatever needs to send you a letter or e-mail or something in writing that they are accepting this amount of money in FULL payment of the debt. Not partial payment, not payment for later, not a payment plan, but FULL payment. This NEEDS TO BE IN WRITING BEFORE you give them any money.
If they won’t give it to you in writing well then tell them you don’t have a deal. If you don’t get it in writing and give them access to your bank account they will clean you out. DON’T DO IT WITHOUT IT BEING IN WRITING.
DO NOT GIVE THEM ELECTRONIC ACCESS TO YOUR CHECKING ACCOUNT. They will clean you out. Send them a check, a money order, a pay with a pre-paid debit card. To paraphrase Dave Ramsey, you can tell a debt collector is lying when their mouth is moving. Don’t give them access to your bank accounts. Before you do anything get it in writing first.
Next, you need to send them a check or a money order with the amount negotiated. Or you can give them access to like a prepaid debit card with a specific amount of money on it. Whatever you decide to do take the cancelled check, money order receipt, or statement for the prepaid debit card and staple it to the written notice. File that thing away and keep it FOREVER!
Again, you might have to go through an extreme amount of hassle to resolve this. But if you are resolute and the like most of the time you can negotiate some kind of settlement. Remember, get it in WRITING first. No verbal agreements. No electronic access to your checking and/or savings accounts.
These debts don’t necessarily disappear from your credit report. However, after they are resolved you can contact the collection agency and/or the credit bureau to see how you can get them off your report. You typically have to provide evidence that the debt was paid (hence the reason for getting it in writing) and they might remove it from your credit report, which can heal your credit.
What About Debt Repayment Agencies?
So some of you might be asking what about those debt repayment agencies you see on TV. Personally, I think they are a bunch of bunga. Most of the time these agencies don’t deal with old debts (e.g. the ones from collection agencies…although some do). A lot of time they will negotiate for you if you are behind on your bills. And get you back to even.
On the surface this sounds great right. I mean they promise they will consolidate your bills, reduce the interest on your credit cards, and help you manage your cash flow. And that is true. They can do it. However, you have to pay for it.
Here is how it worked or here is how it worked for me. In graduate school I got into a lot of credit card debt. Way too much. I should’ve never had a credit card, but I needed a lifestyle and I was stupid. Anyway, I could barely make my rent, food, etc. I never fell behind on my credit cards, but the payments weren’t keeping up with the interest. So I contacted one of those debt repayment agencies to help.
Basically, what I had to do was give them all of my credit card information. They then contacted the credit card companies negotiated putting all of the debt on one payment and then they distributed the money to these credit cards.
There were a couple of problems with this and some of this is my own fault. First, I didn’t give them all of my credit cards. I kept one. I didn’t use it that much, but it also had a balance on it. When you consolidate this debt your credit cards are essentially destroyed. You can’t use them anymore, which makes sense because you don’t want to be racking up more debt. I thought I needed to keep one for emergency sake. That was dumb!
Second, when they consolidated my payments, which was fine, they decided how much went to what credit card. I had no say. They distributed the money not me. So if I wanted to give more money to one card and pay it off (e.g. if it had a low balance) they wouldn’t do that. They just kept making equal payments, which dragged out the payment process.
Third, they charge a monthly fee to do this. These aren’t non-profit agencies (well most of them aren’t). They charged me $50 a month to engage in this “service.” I could’ve used that $50 to send to the credit card companies lessening my time in debt if I had only went to the them directly. It would’ve been uncomfortable, but I would’ve saved money.
Fourth, you are on their timetable. Typically, they can have you out of debt in 3-5 years. Now that is fine for some, but I didn’t want to wait that long. I asked if I could make greater payments through them and they said no. Again, that makes sense because if I send extra money that lessens my relationship with them. They don’t get my money so it is in their best interest to drag this out.
Finally, the consolidation agency didn’t change the problem. The problem was ME! It wasn’t the credit card companies. It was me. I was the one using them. I was the one living above my means. I was the one being stupid. I didn’t learn a lesson because within in two years I had racked up even more credit card debt and had to have my fiance (not Mrs. ROB but the former Mrs. ROB) help me out. She made really good money and did help me out, but I didn’t learn my lesson. WHAT A MORON I AM!
So what did I do? I transferred that debt to another credit card and used my student loan to pay it off. I got sick of sending them money every month. I used to debt to pay debt, which isn’t smart, but I got them off my back and it took me a while (ten years) to figure out how to pay off debt in a more comprehensive fashion.
The Bottom Line: I certainly don’t have all the answers to resolving old debts. I have never not paid my bills. But I have done the debt consolidation thing (dumb move on my part). If you find out how much you owe, who you owe it too, and negotiate you can get out of thumb of these old debts. If you have the money you should pay the debt. You have a moral obligation to do so. But if you can’t, but can scrounge some of the money together then a partial solution to this problem is better than none at all.