by Miranda Marquit
Which credit card should I pay off first? The one with the higher interest rate? Or the one with the lowest balance?
As with most debates about personal finances, the answer depends on your personal situation, and what works best for you.
The case for highest interest rate first
This is the route that most financial money-crunchers will tell you to take. A higher interest rate means that you are growing your balance faster, and paying more money to the credit card company and less to the principal. You will pay less money in the long run by eliminating the card with the highest interest rate first, and then moving on down the line.
The case for the lowest balance
For some people, though, getting out of credit card debt is about the psychology of having all of those credit cards. And many people need to feel as though they are making progress. My husband and I fall into this camp. When we got rid of our credit debt, we started with the lowest balance. This meant that we paid of a credit card much faster than we would have if highest interest was our plan. Paying off that first credit card gave us a rush -- and the motivation we needed to keep going.
In the end, you need to do what will work best for you. Consider your preferences, and the psychology you have when it comes to money. Then choose the course of action that will best motivate you to pay off your debt.
Friday, October 3, 2008
Wednesday, October 1, 2008
Top 6 Ways To Get Out of Debt
by Debbie Dragon
It's certainly easy enough to get yourself into debt, but when it comes to becoming debt free most people struggle for their entire lives without every fully experiencing a debt free existence.
Here are 6 things you can do right now to increase your possibility of becoming debt free.
Try consolidating your debts if you have many accounts with small balances on them. It can be a nightmare to keep track of numerous credit cards and loan payments each month, which increases your potential for sending a payment late. If you are able to get a larger loan to consolidate all or most of your smaller accounts, you will have one payment to make each month. You can save on interest if the new loan has a lower interest rate than each of your individual creditors, too!
Try the snowball payment method. The snowball method has you pay all of your creditors the minimum payment except for the creditor that you owe the least amount of money to. On that account, you pay as much as you can to pay it off as fast as you can. Once the account has been paid off, you apply that accounts payment to the next account in line- and the payments you are able to send “snowball” bigger as you pay off each of your accounts. You do pay more interest using this method- but you can generate momentum- after you pay off your first account quickly, you are compelled to keep at it! To save on interest, you can use the snowball method of payment but pay your accounts in the order of the highest interest account first!
Use automatic payment scheduling. Many credit cards and loan companies allow you to schedule your payments to automatically be paid from the checking or savings account of your choice. There may even be an incentive for doing so, like a lower interest rate or other discount since it's less work for the billing department. By doing this, you don't have to remember to send the payments out on time and you save on the cost of the stamp. Take it a step further, and schedule your payments on a weekly basis rather than monthly, and watch how much interest you save!
Pay your mortgage bi-monthly. As long as your mortgage company does not have a prepayment penalty, you should consider sending bi-monthly payments instead of one monthly payment. Just be sure that your mortgage company will apply the payment when you send it, and not hold it until the end of the month. Sending two payments each month doesn't mean you have to send extra money if you don't have it to send, but by simply dividing your regular monthly payment into two payments rather than one lump sum will save you a considerable amount of money on interest and therefore pay off your mortgage faster. If you get paid bi-weekly, this is how you should pay your mortgage payment. You'll end up paying 26 half-payments each year, which means you end up paying an extra mortgage payment each year without really noticing!
Reduce unnecessary spending. In order to increase the amount of money you have each month to make it possible to pay more to each of your creditors, you should look for ways to reduce unnecessary spending. If you're buying a coffee three days a week on the way to work, consider making it at home instead and save $2 a cup. It doesn't seem like a lot of money, but over time it does add up and can help you pay down your debt quicker.
Consider a part time job. If you are really serious about paying off your debt, you might consider getting a second job. Keep in mind- if you have to travel all over the place to go from one job to the next; you probably aren't going to make enough to offset the expenses involved in the traveling. But if you're able to find part time work online, including ebay, writing, making posts on forums- or whatever skills you may have- the money you make can be applied directly to your creditors as additional payments.
It's certainly easy enough to get yourself into debt, but when it comes to becoming debt free most people struggle for their entire lives without every fully experiencing a debt free existence.
Here are 6 things you can do right now to increase your possibility of becoming debt free.
Try consolidating your debts if you have many accounts with small balances on them. It can be a nightmare to keep track of numerous credit cards and loan payments each month, which increases your potential for sending a payment late. If you are able to get a larger loan to consolidate all or most of your smaller accounts, you will have one payment to make each month. You can save on interest if the new loan has a lower interest rate than each of your individual creditors, too!
Try the snowball payment method. The snowball method has you pay all of your creditors the minimum payment except for the creditor that you owe the least amount of money to. On that account, you pay as much as you can to pay it off as fast as you can. Once the account has been paid off, you apply that accounts payment to the next account in line- and the payments you are able to send “snowball” bigger as you pay off each of your accounts. You do pay more interest using this method- but you can generate momentum- after you pay off your first account quickly, you are compelled to keep at it! To save on interest, you can use the snowball method of payment but pay your accounts in the order of the highest interest account first!
Use automatic payment scheduling. Many credit cards and loan companies allow you to schedule your payments to automatically be paid from the checking or savings account of your choice. There may even be an incentive for doing so, like a lower interest rate or other discount since it's less work for the billing department. By doing this, you don't have to remember to send the payments out on time and you save on the cost of the stamp. Take it a step further, and schedule your payments on a weekly basis rather than monthly, and watch how much interest you save!
Pay your mortgage bi-monthly. As long as your mortgage company does not have a prepayment penalty, you should consider sending bi-monthly payments instead of one monthly payment. Just be sure that your mortgage company will apply the payment when you send it, and not hold it until the end of the month. Sending two payments each month doesn't mean you have to send extra money if you don't have it to send, but by simply dividing your regular monthly payment into two payments rather than one lump sum will save you a considerable amount of money on interest and therefore pay off your mortgage faster. If you get paid bi-weekly, this is how you should pay your mortgage payment. You'll end up paying 26 half-payments each year, which means you end up paying an extra mortgage payment each year without really noticing!
Reduce unnecessary spending. In order to increase the amount of money you have each month to make it possible to pay more to each of your creditors, you should look for ways to reduce unnecessary spending. If you're buying a coffee three days a week on the way to work, consider making it at home instead and save $2 a cup. It doesn't seem like a lot of money, but over time it does add up and can help you pay down your debt quicker.
Consider a part time job. If you are really serious about paying off your debt, you might consider getting a second job. Keep in mind- if you have to travel all over the place to go from one job to the next; you probably aren't going to make enough to offset the expenses involved in the traveling. But if you're able to find part time work online, including ebay, writing, making posts on forums- or whatever skills you may have- the money you make can be applied directly to your creditors as additional payments.
Monday, September 29, 2008
Ten Tips to Getting Out of Debt
For some, job layoffs and unforeseen external factors have loaded them up with debt. For most, however, debt is the result of extraneous spending, poor money management, or both.
Here are ten tips to getting out of debt. Some are easier to follow than others, but all are designed to help alleviate the problem:
1. Create a realistic monthly budget for your expenses. List all monthly bills and necessities and make sure they are covered by your monthly income. Allow only the money remaining after the bills are paid to be spent elsewhere. Stay within your budget guidelines.
2. Pay off the balance on the credit card with the highest interest rate first (unless the balance on any card exceed 50 percent of your credit limit). First, pay all balances to below 50 percent of the card limit because balances above this level cause your credit score to diminish. Then pay off the balance on the credit card with the highest interest rate. If the account was opened within the past year and you have additional older accounts, close it after it is paid off. Next month do the same with the card that has the next highest interest rates. Continue until you reach the credit card with the most favorable terms (i.e., low interest rates). Use this as your preferred account. You need only four open accounts to establish a positive credit history.
3. Learn to use cash instead of credit cards. Have one primary credit card and use it only for emergencies or major necessities, such as a new refrigerator if the current one stops working. Put your credit card in a safe place, not available for everyday use. Also, do not accept increases on your credit card limit above an amount you can easily pay off in three months.
4. Use direct deposit for your paychecks. Also have a limit on how much you will allow yourself to withdraw each week and month.
5. Cut down on your discretionary expenses. This includes dining out, overusing your cell phone, and other such unnecessary expenses.
6. Evaluate your living situation. Your housing costs should be no more than 33 percent of your household income, including mortgage payments, property tax, and both property and homeowner's insurance. You can shop around for lower insurance rates, refinance your home mortgage, and look for more economical utility plans.
7. Avoid borrowing money to get out of debt, especially consolidation loans. Many people think this is a way of helping them get out of debt. However, consolidation loans are simply a means of combining debt. You could end up losing everything because you’ve tied it all up in one loan. If you must borrow, see if a friend or family member can lend you money, since the interest rates should be low or nonexistent.
8. Contact your creditors and try to work out repayment plans. Many creditors are willing to work with you in a manner that will help them get their money without having to resort to debt collectors.
9. Become a savvy shopper. Look for deals, bargains, and savings. You’d be surprised at how much you can save if you take the time to shop around. Check out the price comparison Web sites such as Shopping.com and BizRate.com.
10. Look for extra ways to make some money. From part-time work to a garage sale to taking in a boarder, there are many ways to bring in some additional income.
If all else fails, seek out help from a debt reduction specialist or counselors who can help you formulate a plan for getting out of debt and staying out. Just make sure that you check out the service in advance. Many companies are simply taking advantage of people in debt and charging them high service charges. Typically, these companies can get you debt free in about 3 years and charge 15% of your debt amount as their fee. If you stay disciplined and complete their programs, this is not a bad way to go once you consider all of the savings on time and money.
Here are ten tips to getting out of debt. Some are easier to follow than others, but all are designed to help alleviate the problem:
1. Create a realistic monthly budget for your expenses. List all monthly bills and necessities and make sure they are covered by your monthly income. Allow only the money remaining after the bills are paid to be spent elsewhere. Stay within your budget guidelines.
2. Pay off the balance on the credit card with the highest interest rate first (unless the balance on any card exceed 50 percent of your credit limit). First, pay all balances to below 50 percent of the card limit because balances above this level cause your credit score to diminish. Then pay off the balance on the credit card with the highest interest rate. If the account was opened within the past year and you have additional older accounts, close it after it is paid off. Next month do the same with the card that has the next highest interest rates. Continue until you reach the credit card with the most favorable terms (i.e., low interest rates). Use this as your preferred account. You need only four open accounts to establish a positive credit history.
3. Learn to use cash instead of credit cards. Have one primary credit card and use it only for emergencies or major necessities, such as a new refrigerator if the current one stops working. Put your credit card in a safe place, not available for everyday use. Also, do not accept increases on your credit card limit above an amount you can easily pay off in three months.
4. Use direct deposit for your paychecks. Also have a limit on how much you will allow yourself to withdraw each week and month.
5. Cut down on your discretionary expenses. This includes dining out, overusing your cell phone, and other such unnecessary expenses.
6. Evaluate your living situation. Your housing costs should be no more than 33 percent of your household income, including mortgage payments, property tax, and both property and homeowner's insurance. You can shop around for lower insurance rates, refinance your home mortgage, and look for more economical utility plans.
7. Avoid borrowing money to get out of debt, especially consolidation loans. Many people think this is a way of helping them get out of debt. However, consolidation loans are simply a means of combining debt. You could end up losing everything because you’ve tied it all up in one loan. If you must borrow, see if a friend or family member can lend you money, since the interest rates should be low or nonexistent.
8. Contact your creditors and try to work out repayment plans. Many creditors are willing to work with you in a manner that will help them get their money without having to resort to debt collectors.
9. Become a savvy shopper. Look for deals, bargains, and savings. You’d be surprised at how much you can save if you take the time to shop around. Check out the price comparison Web sites such as Shopping.com and BizRate.com.
10. Look for extra ways to make some money. From part-time work to a garage sale to taking in a boarder, there are many ways to bring in some additional income.
If all else fails, seek out help from a debt reduction specialist or counselors who can help you formulate a plan for getting out of debt and staying out. Just make sure that you check out the service in advance. Many companies are simply taking advantage of people in debt and charging them high service charges. Typically, these companies can get you debt free in about 3 years and charge 15% of your debt amount as their fee. If you stay disciplined and complete their programs, this is not a bad way to go once you consider all of the savings on time and money.
Friday, September 26, 2008
How to Save Money and Get Out of Debt
By *01 WriterGig
Ready to get serious about managing your money? Wish you have a healthier savings account? If too much debt is causing you stress and concern, take the steps necessary to turn around your finances. Not only will your bank account look better, you'll sleep better too with the stress of debt out of your life. Here's how to save money and get out of debt.
Step 1 - Tally up your debts, your monthly income and your set expenses (bills that are constant). Estimate your other expenses, such as groceries, gas, clothes and extras. Look back at bank account statements and credit card bills to get a feel for how much you spend in the different
Step 2 - Make a plan. If the word budget scares you, think of it as a plan for how you will allot or spend your hard-earned money. How soon can you save money get out of debt? The sooner you have a plan, the quicker this process will be. Decide now how much you will spend in each category every month. Make sure there is some money earmarked for savings.
Step 3 - Use cash for variable expenses, such as groceries and incidentals. Take the cash out weekly and allot it to envelopes marked with the categories. Spend wisely. Once the cash is gone, it's gone until the next dispersement. No dipping into other envelopes or the bank account.
Step 4 - Save $1,000 in an emergency fund. Pay minimums on your debt while you save your money for emergencies. It's important to have this cushion in the bank so that in the case of an emergency (unexpected car repair or medical expanse) you don't have to turn to credit cards once again.
Step 5 - Cut up your credit cards (but don't close the accounts if you have an outstanding balance or still owe money on them). Stop using them online, too. Use your debit cards for budgeted online expenses.
Step 6 - Have a weekly budget meeting with your spouse or yourself if you're single. Be accountable to each other.
Step 7 - Pay off your smallest debt first, adding anything extra to that debt each month until its gone, while still paying the minimum on your other debts. Once the first debt is paid off, put everything that was going toward it to your next debt. Dave Ramsey calls this the "debt snowball" because as you pay off the smaller debts, you free up more and more money to pay off the larger ones.
Step 8 - Stay motivated. Keep working toward your goals and remind yourself monthly of the progress you've made. Get intense, Get rid of your debt so that you can be free of those interest payments and begin spending your money on the things that matter as you save for your future.
Step 9 - Use manufacturer's coupons, combined with the best grocery store sales, to save money on your food bill. Since a large portion of your disposable income goes to buy food, this is a good area to trim. See resources, below, for a great coupon source website.
Step 10 - Plant some of your vegetables and herbs instead of buying them. Even replacing 1/4 of your summer vegetables with home grown ones will add up to a big savings. Do you live in an apartment or small house? If you have a balcony or deck, you can at least have a decent container garden. Start with tomatoes in large pots. Small savings will help you save money and get out of debt more quickly.
Ready to get serious about managing your money? Wish you have a healthier savings account? If too much debt is causing you stress and concern, take the steps necessary to turn around your finances. Not only will your bank account look better, you'll sleep better too with the stress of debt out of your life. Here's how to save money and get out of debt.
Step 1 - Tally up your debts, your monthly income and your set expenses (bills that are constant). Estimate your other expenses, such as groceries, gas, clothes and extras. Look back at bank account statements and credit card bills to get a feel for how much you spend in the different
Step 2 - Make a plan. If the word budget scares you, think of it as a plan for how you will allot or spend your hard-earned money. How soon can you save money get out of debt? The sooner you have a plan, the quicker this process will be. Decide now how much you will spend in each category every month. Make sure there is some money earmarked for savings.
Step 3 - Use cash for variable expenses, such as groceries and incidentals. Take the cash out weekly and allot it to envelopes marked with the categories. Spend wisely. Once the cash is gone, it's gone until the next dispersement. No dipping into other envelopes or the bank account.
Step 4 - Save $1,000 in an emergency fund. Pay minimums on your debt while you save your money for emergencies. It's important to have this cushion in the bank so that in the case of an emergency (unexpected car repair or medical expanse) you don't have to turn to credit cards once again.
Step 5 - Cut up your credit cards (but don't close the accounts if you have an outstanding balance or still owe money on them). Stop using them online, too. Use your debit cards for budgeted online expenses.
Step 6 - Have a weekly budget meeting with your spouse or yourself if you're single. Be accountable to each other.
Step 7 - Pay off your smallest debt first, adding anything extra to that debt each month until its gone, while still paying the minimum on your other debts. Once the first debt is paid off, put everything that was going toward it to your next debt. Dave Ramsey calls this the "debt snowball" because as you pay off the smaller debts, you free up more and more money to pay off the larger ones.
Step 8 - Stay motivated. Keep working toward your goals and remind yourself monthly of the progress you've made. Get intense, Get rid of your debt so that you can be free of those interest payments and begin spending your money on the things that matter as you save for your future.
Step 9 - Use manufacturer's coupons, combined with the best grocery store sales, to save money on your food bill. Since a large portion of your disposable income goes to buy food, this is a good area to trim. See resources, below, for a great coupon source website.
Step 10 - Plant some of your vegetables and herbs instead of buying them. Even replacing 1/4 of your summer vegetables with home grown ones will add up to a big savings. Do you live in an apartment or small house? If you have a balcony or deck, you can at least have a decent container garden. Start with tomatoes in large pots. Small savings will help you save money and get out of debt more quickly.
Wednesday, September 24, 2008
How to Compare Debt Settlement vs. Bankruptcy
By eHow Personal Finance Editor
Examine Your Monthly Finances
Debt is a part of life, but too much debt can make life difficult to enjoy. Two potential solutions to resolving this problem and starting your financial life anew include filing for bankruptcy or using a debt settlement company. Before you commit to either option, it's important to know the pros and cons of using a debt settlement company versus filing for bankruptcy to help alleviate your financial woes.
Determine the Extent of Your Debt Problem
Step 1 - Request a copy of your credit report from one or all three major credit reporting agencies in the U.S. The companies are TransUnion LLC, Equifax Credit Information Services, Inc., and Experian.
Step 2 - Review your credit report and check for inaccuracies, such as incorrect personal information, accounts that do not belong to you and even accounts listed with balances that are actually paid in full. It's also important to know your FICO score, which is a credit score system. The acronym 'FICO' is derived from the name of the software used to calculate the score. While FICO scores range from 300-850, the average score is somewhere in the high 500s.
Step 3 - Determine how much debt you have by adding up the balances of all of your credit accounts, loans, both secured and unsecured, and even collection accounts.
Step 4 - Use this information when making your decisions about filing for bankruptcy or employing a debt settlement agency to help alleviate your financial problems.
Examine Your Monthly Finances
Step 1 - On a sheet of paper, list all of your monthly income including paychecks, alimony/spousal support, child support, bank, investment and rental interests or income. If you work overtime or receive bonuses, include that information, too. If you opt for filing bankruptcy, you will need to include your average monthly income from the six months prior to filing in your bankruptcy petition, so it's important to get these numbers no matter which solution you opt for, bankruptcy or credit counseling.
Step 2 - On another sheet of paper, list all of your mandatory monthly living expenses, such as for housing, transportation, insurance, prescriptions and doctor visits, utilities, groceries and education-related costs. Don't include payments for credit card debts, entertainment, or other items that are not necessary for your day-to-day survival. Definitely do not list an expense twice. That means if you used your credit cards to buy prescriptions, include that cost in your mandatory expenses list. However, if you used your credit card to buy a shirt, do not list the purchase on your mandatory expenses list at all, unless it was necessary for say, work.
Step 3 - Subtract the total of your monthly living expenses from your total monthly income. A balance indicates you have expendable income you could potentially use to pay down your debts. A zero or negative balance indicates you do not have expendable income that could be used to pay down your debt.
Step 4 - These calculations are important for helping you formulate your decisions about filing for bankruptcy or seeking the aid of a debt settlement agency.
Determining if Debt Settlement is Right For You
Step 1 - Determine if you could pay down your debts with your current income. If your income does not exceed your housing expenses, utilities, gas, groceries, and basic financial needs for the month, debt settlement is not a viable solution for you. However, if your monthly income exceeds your basic living expenses, debt settlement may help you resolve your financial crisis.
Step 2 - Determine if your debt situation qualifies for debt settlement services by examining the total amount of unsecured debt you owe. To qualify, you will usually need to owe at least $7,500 in unsecured debt. However, the qualifying balance will vary by debt settlement company. Make sure you ask each debt settlement company about their unsecured debt balance requirements to determine which debt settlement company is right for your situation.
Step 3 - Look for reputable debt settlement companies. Companies that charge huge fees up-front are companies to be avoided. Opt for debt settlement companies endorsed by the Better Business Bureau, or some other reputable pro-consumer group. Make sure to check that their fees are reasonable for the services rendered.
Step 4 - Compare the services each company offers. Look for companies with a sound history of effectively negotiating with creditors. Ask for references or case studies you can examine that prove the company's track record. If company representatives are hesitant to provide you with that information, walk, don't run, out their door.
Step 5 - Examine the pros and cons of committing to a debt settlement program. Ask the debt settlement company if by hiring them to represent you to negotiate your debts will your various creditors how your life might be impacted. Will those harassing creditor calls stop? (possible, but no guarantees. Creditors can still contact you for the collection of debts they are owed unless or until you file bankruptcy). Also, inquire how a debt settlement program will impact your credit in the future and what the long-term side effects to your credit might be.
Step 6 - Make sure you are prepared for the drawbacks of debt settlement programs such as the potential for increased creditor calls, possible collection lawsuits initiated by creditors, damaged credit and tax problems. If you don't think you can handle these possibilities, then you should probably look for another debt solution.
Determining if Bankruptcy is Right For You
Step 1 - Determine if you have any other options for resolving your financial crisis short of filing bankruptcy. Look online for other solutions to your debt problems such as debt settlement, debt management and nonprofit assistance. In addition, attorneys who practice bankruptcy law have begun to offer debt settlement services to clients who might have filed a bankruptcy before the Bankruptcy Code was overhauled in October, 2005, and find the new laws too onerous.
Step 2 - Determine if you qualify for bankruptcy by reading the most current version of the U.S. Bankruptcy Code, found in Title 11 of the U.S. Code. However, the revamped Bankruptcy Code is extremely complex to understand, so don't be surprised if you aren't able to comprehend much of what you are reading. The Bankruptcy Code can be found online. Many books attempting to explain the Code in plain English have been written, so check out your local library or bookstore for some helpful titles. Even if you discuss your financial problems with an attorney who specializes in bankruptcies, you might still want to read up on the law for yourself.
Step 3 - Determine which bankruptcy chapter you qualify for by reading the descriptions of each type of bankruptcy, as well as by reading the rules and regulations associated with each. This information can be found at your local library, bookstore, online, or by talking with an attorney who handles bankruptcies in their everyday practice.
Step 4 - Court costs for filing bankruptcy are different depending on which chapter you file. Currently, a Chapter 7 bankruptcy costs $299 in filing fees while a Chapter 13 costs $274, although Congress can change those fees at any time. It will also be important to learn how much an attorney will charge you to represent you in your bankruptcy. If you meet with a bankruptcy attorney, they will likely give you a written fee quote for their services either at your first meeting or perhaps in the mail. Do not expect to be able to email a bankruptcy attorney for a price quote on what they would charge for their services. Bankruptcy is an extremely complex area of law and an attorney well familiar with the law's complexity wouldn't likely give you a fee quote over the phone or in an email without knowing your entire financial picture. Would you call a doctor to ask how much it would cost to set your broken arm? Do you think the doctor would even come to the phone, and secondly, do you think they should or would give you an answer? They don't know how broken your arm is by talking to you on the phone and a bankruptcy attorney doesn't know how bad your financial situation is until they meet with you to discuss it.
Step 5 - Another important consideration is deciding whether filing for bankruptcy will resolve your credit problems. Depending on the types and amounts of your debts, a bankruptcy filing won't necessarily rid you of your duty to pay some of your bills, even though you filed for bankruptcy. Keep in mind that a bankruptcy filing remains on your credit record for ten years but a bad debt is only supposed to stay on a credit report for seven.
Monday, September 22, 2008
Tactics For Paying Off Debt Collections
by Latoya Irby
A debt collection is one of the worst entries on your credit report. A collection is a severely past due account that will make it difficult for you to get approved for new credit and loans.
If you have a collection account on your report, it’s likely affecting your credit score. This is especially true for more recent collections. You can improve your credit score by getting these collection accounts deleted from your report or reported as “Paid” or “Current.”
Before you pay off a collection account, first negotiate with the debt collector to have your credit report updated to something favorable. The only unacceptable scenario is to pay the collection without having having fact reflected in your credit report.
Here are some possible payment scenarios and outcomes, listed from most ideal to least ideal (but still acceptable).Ideal
Negotiate with the debt collector to have the account deleted from your credit report in exchange for payment. Send a written request (a pay for delete letter) to the collector offering a settlement payment if the collector deletes the account from your credit reports. Wait for a written response from the collector before taking any action.
If you prefer, you can contact the collector by phone to negotiate pay for delete. However, you risk inadvertently saying something to the collector that conveys responsibility or liability for the debt. You don't want to do this if you're beyond or nearing expiration of the statute of limitations. Even if you choose to negotiate by phone, you still need to have the agreement in writing. Have the collector mail or fax you a letter including the terms of the agreement before making a payment.
MyFico forums has a sample pay for delete letter you can use. Remember, debt collectors don’t have to remove accurate entries from your credit report.
Next best thing
Most collectors want payment in full and will not delete the account from your credit report for a settlement payment. When this is the case, offer to pay the account in full in exchange for the collector deleting the account from your credit report. Again, send your request in writing and wait until the collector responds in writing before making a payment.Not as good, but still ok
Ideally, you want the entry completely removed from your credit report. Unfortunately, not all collectors are willing to do this even in exchange for payment. If you cannot have the entry completely removed, you should have it updated as “Paid in full.” Offer the collector a settlement payment some % less than the full amount owed. Get the collector to agree to update the account as “Paid in full.” The agreement should be in writing.Acceptable
Settle the account with the collector and accept an update of “Paid. Settled.” Keep in mind that a settled entry on your credit report will not boost your score as much as “Paid in full.” If you want your account to state “Paid in full” but cannot get the collector to do so for partial payment, then pay the account in full.Acceptable
Pay the collector in full. Be sure to keep proof of payment. Monitor your credit report to make sure the collector updates the account as paid. If the collector does not update the account, dispute the account with the credit bureau, providing proof of payment if necessary.Friday, September 19, 2008
Your Rights When In Collections
The Fair Debt Collection Practices Act, FDCPA, dictates how debt collectors can act when collecting a debt from you. These are things a debt collector can't do. If you need to reference the law, citations have been provided.
1. Ask you to pay more than you owe
The collector cannot misrepresent the amount you owe. [15 USC 1692e] § 807(2)(a)2. Ask you to pay interest, fees, or expenses that are not allowed by law
The collector can't add on any extra fees that your original credit or loan agreement doesn't allow. [15 USC 1692f] § 808(1)3. Call repeatedly or continuously
The FDCPA considers repeat calls as harassment. [15 USC 1692d] § 806(5)4. Use obscene, profane, or abusive language
Using this kind of language is considered harassment. [15 USC 1692d] § 806(2)5. Call before 8:00 am or after 9:00 pm
Calls during these times are considered harassment. [15 USC 1692c] § 805(a)(1)6. Call at times the collector knew or should know are inconvenient
Calls at these times are considered harassment. [15 USC 1692c] § 805(a)(1)7. Use or threaten to use violence if you don't pay the debt
Collectors can't threaten violence against you. [15 USC 1692d] § 806(1)8. Threaten action they cannot or will not take
Collectors can't threaten to sue or file charges against you, garnish wages, take property, cause job loss, or ruin your credit when the collector cannot or does not intend to take the action. [15 USC 1692e] § 807(5)9. Illegally inform a third party about your alleged debt
Unless you have expressly given permision, collectors are not allowed to inform anyone about your debt except:- your attorney
- the creditor
- the creditor's attorney
- a credit reporting agency
- your spouse
- your parent (if you are a minor)
10. Repeatedly call a third party to get your location information
The collector can only contact a third party once unless it has reason to believe the information previously provided is false. [15 USC 1692b] § 804(1)
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