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What is the Best Way to Settle a Debt with a Collection Agency?

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Being chased by debt collectors is one of the worst experiences that a person can endure. They will hunt you down the rabbit hole until you finally clear every last dime you owe. Through the process, they harass you about your financial history.

But remember, there are ways to save yourself from this misery. Don’t just hurriedly sendoff payment or disclose personal information when being chased by a debt collector. 

You may be able to negotiate a more reasonable settlement with the collector. And in case they don’t agree to reduce the payment, you can work out an arrangement to pay the debt in installments.

For further clarification, we have provided a detailed explanation of how you can handle a debt collection agency in the best possible way:

Understand Your Rights

It can be terrifying to receive a threatening email in your inbox. Especially when it is from an agency reporting you that your debt has gone into collections. Instead of losing control, craft a strategy to pull yourself out of the trouble. Avoiding calls and ignoring emails won’t bring any good to you.

For starters, you should know your rights. The Fair Debt Collection Practices Act (FDCPA) prohibits collectors from harassing or deceiving debtors. They cannot lie to you, call at odd times, or threaten to arrest you.

Moreover, states have also enacted laws that regulate the debt collection process. For example, debt collection agencies in Texas are regulated by the Texas Debt Collection Act. Other states also have their laws to ensure that the rights of debtors are protected. 

If the debt collector uses any illegal method, there are agencies like Consumer Financial Protection Bureau where you can file a complaint.

Consider Hardship Programs

With confidence, you must ensure that the agency is reputable and the debt belongs to you. Considering you are not in a position to pay the full amount, going for hardship programs is a good option.

It is applicable when the debtor’s source of income is solely dependent on government benefits. Usually, this income is exempt or protected from collection remedies, such as garnishment.

When debtors inform the collection agency that government benefits are their only source of income, most collectors stopped contacting about the alleged debts.

Offer Lump Sum Money

Paying off your debt is essential. It allows you to maintain your credit score plus helps you get approved for credit cards and loans in the future. When planning to settle the debt, there is an option to:

  • Pay the entire amount in a single lump
  • Break it into payments

You can go for the second option if you are in a financial crunch. But remember, the collectors are often in a hurry to fetch as much amount as possible. Hence, scattering payments over a few months results in more stress. So, it is recommended to pay the money in one go if you can.

If you can’t pay a lump sum, you can chalk out an alternative option with the collection agency. Negotiate with them to offer a partial repayment. The collection agency will agree to it if the amount tempts them enough.

Note that when you are offering an alternative payment option, you must meet the parameters of your new deal. There are no gains when you negotiate a repayment schedule only to default on the revised agreement.

Mention Bankruptcy

Declaring bankruptcy can have severe consequences for your credit score. Nonetheless, credit counselors and financial prodigies believe that it makes the most sense in some cases.

For instance, it allows people with a steady income to keep hold of their property like a mortgaged house or car. The Court permits them to pay off the debts within three to five years. During this period, they have full control over the property.

When you have unsecured debt, not tied with an asset like a car or a house, you can mention to your collector that you will file for bankruptcy soon.

Get the Settlement in Writing

Demand the collection agency to place settlement in written form. On this agreement, make sure they mention a clause to send a deletion signal to the credit bureau to erase the trading line from your credit history. It is one of the strategies to keep your business credit score clean.  

Also, keep a copy of the agreement and proof of each payment made. It applies when you agree to pay your debt in installations.

Final Thoughts

Allowing a debt to go unpaid can lead to some more adverse action from your collection agency. To avoid further drama, you must learn how to face the music.

Every venture, sooner or later, comes across some days of financial misery. Your entrepreneurial skills determine how you can save your business from falling apart. We hope you learned a thing or two about handling debts through this blog. In case of any concerns or queries, feel free to comment below!

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