Controlling Your Debt – These Routes Can Get You In Trouble

A short-term financial crisis can cause otherwise rational people to look for a quick fix to solve their money problems. Unfortunately the stress and anxiety can cloud their judgment and lead them to make a decision they would never have considered otherwise. If you are facing pressing money issues, it’s important you understand and weigh the both the long-term and short-term consequences of the options available to you. Here’s the ones to avoid.

Using Your Home As Collateral

In order to qualify for a HELOC loan, you must agree to use your home as collateral. One of the risks of taking equity out of your home is real estate market fluctuations. If your home’s value declines, you may owe more money than your home is worth and with HELOCS you are personally liable for the difference. With payments tied to the prime rate, they can fluctuate as well. You could be forced into foreclosure if you are unable to keep up with the payments.

Consolidation of Debts

If you are a credit risk, a debt consolidator may entice you with promises of lower payments compressed into a single loan, but you’ll end pay higher interest rates and fees than you’re paying now. The reality is that you can accomplish the same thing on your own for free. Many creditors are willing to negotiate lower interest rates or reduce monthly payments and you can opt to repay the highest rate charges first to lower your overall expenses. Also, since the consolidator takes on the responsibility for forwarding your payments, if they are late or miss payments, your credit will be adversely impacted.

Sub Prime Lending

It is rarely a good idea to borrow from a finance company when you are in financial trouble or see something you must have and can’t really afford. The interest rates are likely to be very, very high and the penalties for missing payments will also be very punitive. Finance companies that lend money to people with poor credit rating are known to aggressively collect on their accounts. Buying that big screen TV with no payments or interest for twelve months might sound like a good deal, but you should only consider this when you are sure you can pay off the entire balance before the loan begins accruing interest.

Tax Advance Refund

Refund anticipation loans are low-risk, high-profit loans usually directed at the working poor to expedite a tax refund. Uninformed consumers are made to believe the wait for their refund will be longer than it really is and sometimes do not even realize their “instant tax refund” is really a loan. If you elect to use direct deposit for your tax refund, you can usually have your money within 10 – 14 days, plenty of time for most people. That fact, along with the excessive fees involved, make this bad option unless you’re really desperate.

Pawnbroker

It’s possible to get a quick loan from a pawnbroker, in exchange for personal items you redeem as collateral. You can purchase your things back for the amount of the loan plus interest within a specified amount of time. Otherwise, the pawnbroker will sell your things, probably for a lot more than what they gave you. If you really do need to sell some things to raise cash, consider doing it on your own either through a Craigslist listing or having a garage sale.

When searching for ways to meet short-term cash needs, be sure to look objectively at all your options without letting your situation cloud your judgment. Often the first alternative you come across is not the best one in the long run. Don’t make rash decisions without knowing all the facts. It might be a good idea to solicit professional financial advice before opting for a bad short-term solution.

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Getting Collection Agencies To Settle For Less

Trying to collect payment on debts sent to collection can quickly become counterproductive because of the costs involved. Once the costs start adding up, collection agencies who initially insisted on full payment, quickly become more open to negotiation – especially since the alternative is to simply write off the debt When this happens, you may be in a position to bargain for a lower payoff on your debt.

Collection agencies are often satisfied to settle your debt for whatever you can offer them. The reason being, they usually only get to keep a percentage of what’s collected. To maximize their overall return, they need to collect as much as they can, as fast as they can. Since their motivation is to get matters settled as quickly as possible, negotiating a lump sum payment, rather than installments, will go over much better.

With these facts in mind, see if the collection agency would be willing to accept a lesser amount to settle your debt – offer about 40% of your original debt initially. While this is just a starting point and the collection agency will always try to get more, showing a willingness to negotiate should get you to a number somewhere in the middle. Your bargaining power is greatest when in negotiation, so include removal of the related negative data from your credit report in your negotiations, maybe offering a slightly higher payoff in exchange.

Whether it be a lump sum or a series of payments, only offer what you can actually afford. You need this matter to be put to rest as much as the collection agency, and you don’t need to further exacerbate your financial problems. Also, keep the source of your funds confidential. Collectors push for higher payoffs if they believe you have friends or family willing to help you out.

Once you’ve reached an agreement, get everything in writing. Be sure to include the stipulation about removing the negative data from your credit report and that your entire debt be retired in exchange for the settled upon amount. Use either a cashier’s check or money order to issue payment (they won’t take your check!). If your only alternative is to use cash, be sure to get a receipt. Plan to retain all related documents at least four years.

Knowing how collection agencies are motivated can put you in the driver’s seat when trying to settle your debts. That knowledge and a little initiative can help you negotiate a debt settlement that’s better than you expected. Effectively leveraging your bargaining power at the right time can benefit both your wallet and your credit score.

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Know Your Rights When Dealing With Collection Agencies

Collection agencies frequently engage in illegal or deceptive practices when trying to collect debts. However, you don’t have to be a victim of their tactics, if you know your federally protected rights. Taking action against such violations could even result in forgiveness of your debt. Collection agencies who don’t follow the law can see fines and court fees levied against them as well as lose their license.

Individuals facing collection proceeding have federally protected rights under the Fair Debt Collections Practices Act (FDCPA). Some of the specific provisions provided include:

Torment or Abuse

A collection agent cannot use or threaten to use force against you, your property, or another member of your family. They are also prohibited from calling you repeatedly, not identifying themselves, listing you on a “deadbeat” list, or listing your property for sale.

Contact with You

Collection agents are only allowed to contact you during reasonable hours. That usually means around 8am to 9pm, unless you tell them that’s not convenient. They cannot contact you at work if your boss doesn’t allow it. In addition, all contact must stop at your request, unless to tell you your case has either been settled, or they are filing suit.

Third Party Communication

Collection agencies are not allowed to talk to outside third parties about any aspects of your case. The exception is when they are trying to find out where you are. Then they can only ask your whereabouts and give their name. No mention of your debts or their employer can be given out. The third party cannot be contacted again unless they give permission or the agency has reason to believe they were given incomplete or false information.

All communications must go through your attorney, if you have retained one. This is true unless you have given permission for the collection agency to contact you or your attorney does not respond to their attempts. They are also allowed to contact your spouse, or parents if you are a minor, unless you have asked in writing for them not to. Even though it’s common, they are not allowed to harass your parents or your adult children to try to get you to pay.

Deceptive Practices

Collection agents are not allowed to pretend to be a law enforcement officer, government official, or any other entity in their attempts to get your cooperation. They also cannot falsely represent the amount you owe, the legal status of your debt, or threaten legal action they do not actually intend to take. Sending you documentation intended to appear it’s from a lawyer is also prohibited.

Unjust Practices

Consumers are protected from crooked, unfair, and unreasonable tactics employed by collection. Some commonly employed include causing you to incur expenses due to their collection efforts, adding interest and fees to what you owe, and depositing post dated check prior to the date without permission. You also cannot be threatened with criminal prosecution for nonpayment.

Your Options

If you have been victim of any of these types of harassment or abuse, you need to complain to the original creditor, the Federal Trade Commission, and your state Attorney General. You could have your whole debt forgiven by your original creditor in some circumstances, as they can be held liable.

You can sue a collection agency for harassment and for violation of the FDCPA. You could be entitled to actual damages, plus pain and suffering. The collector could also be assessed punitive damages for especially egregious offenses. It will most likely require both a witness and documentation of ongoing abusive behavior for you to win your case.

Let the law back you up when you are brought face-to-face with a debt collector. Knowing your rights can help you keep their tactics within the law.

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Debt Collection – Slowing Down The Process

Collection agencies must follow certain protocols when undergoing debt collection. These federally mandated requirements were devised to protect consumers from predatory debt collectors. Knowing your rights when facing debt collection efforts can help you take control of the process to lesson its pending impact. Follow these rules to get some relief.

End of Conversation

If you have been contacted by a collection agency, you can instruct them to submit all communication through your lawyer and for them not to contact you directly. They must comply, as long as your lawyer responds to their efforts or if they want to inform you that you are either being sued or that your debt has been canceled. Another option is to insist on dealing only with your original creditor to settle you debt instead, then reopening those negotiations.

Real Intentions – Not Just Threats

Collection agencies cannot threaten you with actions they do not intend to follow through on. Such threats are considered intimidating and coercive and are prohibited by law. So if you’ve been informed you will sued for nonpayment, they better actually do it or they face penalties. If you’ve been intimidated in this way, contact either the Federal Trade Commission or your state Attorney General to file a complaint.

Verification of Debt

At your request, a collection agency must provide written verification of your outstanding debt that includes how much and to whom your debt is owed. In the interim, you might be able to either negotiate a settlement, or come up with the needed funds. Within five days, you must be given validation of your liabilities, as well as proof the agency is authorized to collect on it.

Once your debt has been officially verified, you can still dispute its accuracy by sending the collection agency documentation of the error. You must follow up within 30 days of its receipt, using certified mail. Otherwise, you indicate you accept their findings and collection activities will resume.

There is one more way to delay actions within the 30 days following receipt of the notice of validation. You can request further proof of a judgment against you, as well as detailed address and contact information on the original creditor. Your attorney can advise you on what’s right for you.

A collection agency must stop efforts to collect on any and all debt in dispute until it mails you the requested information. If the collection agency doesn’t follow this protocol, you need to contact the FTC or your state attorney general. Don’t assume that everything will resolve itself, even if you are right. If the collection agency pursues action against you, you could still end up with a judgment against you.

Make Them Play Fair

Collection agencies are bound by certain federal rules when doing their job. If you find yourself on the receiving end of their collection activities and feel you are being mistreated, you should seek government intervention to hold them accountable. Such actions can stall the process long enough for you to work out an equitable arrangement with your creditor. Get all promises in writing, including a provision to strike all negative related items from your credit report and your debt is paid in full.

If you have debts that have been sent to collection, it’s important that you understand the rules of the game. You can avoid a great deal of hassle and possibly even save some money by gaining a better understanding of the process.

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