Debt is a reality for many Americans. Unpaid debt can lead to collections, liens and in certain cases, bankruptcy. Most debtors would rather find a way to settle their debts before the situation gets out of hand. If you have debt that you're behind on, or simply want to pay off the current debts that you have, here are five tips you should consider when settling a debt.
Know if You Owe
Just because someone says you owe money, doesn't mean you do. Many consumers have similar names and clerical errors do happen. Once you receive a collection notice from a debt collector regarding any debt, always send a Debt Validation (DV) letter to the collector. Under the Fair Debt Collections Practices Act (FDCPA), collection agencies must prove that the debt belongs to you. Validation includes a copy of the contract you signed, signed sales receipts for purchases, or original billing statements from the original creditor. You must send this letter within 30 days of receiving the first letter from the collection agency. If a collection agency cannot provide validation, they are required by law to cease contacting you regarding the debt and are forbidden to report it to the credit bureaus.
Know if You're Responsible
Zombie debt refers to debt that is beyond the statute of limitations in your state and is therefore considered noncollectable. In other words, you no longer have a legal obligation to pay back the money. Collection agencies often buy zombie debt from creditors for pennies on the dollar. They then try to collect those funds from unsuspecting consumers who think they have to pay. Check your state laws to see how long a creditor is allowed to try and collect on a debt. If you realize a collection agency is trying to collect on a zombie debt, send them a Cease and Desist letter. Under the FCRA, once you tell a bill collector, in writing, that you want no further contact from them, they are prohibited from contacting you again except to inform you of their intent to take legal action, which isn't going to happen with zombie debt since you're not legally responsible for it anyway.
Know What's Reported
Having a clear picture of your financial standing is the foundation of debt settlement. In 2003, Congress passed the Fair and Accurate Credit Transaction Act (FACTA). It gives consumers the right to request one free copy of their credit report annually from the major bureaus: TransUnion, Experian and Equifax. Congress also established a website where you can order all three at once: www.annualcreditreport.com. You may also order the reports by mail, phone or from the bureau's website. Read the "positive accounts" and "negative accounts" sections thoroughly to ascertain the current status of all of your credit accounts. Notice the amounts owed on each account and how delinquent it is, if applicable. Also check the "collections" section to see if any of your creditors have turned over past due accounts to a collection agency. You must have a clear understanding of the status of each account if you want to negotiate effectively.
Know What you Owe
Compare the information on your credit report to your most recent billing statements. If the information isn't correct, there's a chance you've been billed incorrectly. You want to settle your debts but you don't want to pay more than you owe. Under the Fair Credit Billings Act (FCBA), consumers have the right to dispute a bill they feel is incorrect. This law applies to open-end credit, such as credit cards and other revolving debt. It doesn't apply to closed-end credit like installment loans or mortgages. If you dispute how much you're being charged, send a written letter to the creditor within 60 days of receiving the billing statement that contains the error in question. You are not responsible for paying the debt while it's under investigation by the creditor; you are, however, responsible for the portion that isn't disputed. Also, the creditor is prohibited from reporting the disputed debt to the credit bureau as delinquent until the matter is resolved. The FCBA requires creditors to respond to your dispute immediately and send you a new billing statement with corrections once the dispute has been resolved.
Know How to Negotiate
If you're certain a debt belongs to you and you wish to take care of it, always negotiate your offer in writing. Decide how much you can pay towards the balance due. Send a letter to the creditor or collection agency detailing your offer. Indicate that you want to settle the debt in full, not just make a partial payment. Offer an amount less than the amount you're actually capable of paying. If you can pay $400 of a $500 debt, send in an initial offer of $250. You want to leave room to negotiate in case your first offer isn't accepted. Mail the letter via certified mail, return receipt requested. If you receive a phone call in response to your letter, do not make payments over the phone. Get all agreements in writing first. Once you have written confirmation, send the payment by cashiers check or money order, certified mail. Never give a collection agency access to your checking or savings account. They may withdraw more than you agreed.
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