Step #1:  Get Y ourself Organized

It’s important that you’re patient and pay very close attention to every detail.  All the important information regarding the account in question has to be readily available.

You are also going to want to have an idea of what you can pay them, whether it be in a lump sum or broken down over payments.  Do not agree to pay more than you know is possible or you’ll just end up in the same predicament a few months down the road.

Step #2:  Prepare for the Phone Call

Collection agencies and creditors aren’t generally the nicest of people if your account happens to be overdue.  Their tone will be harsh and they will try to direct the phone conversation in the manner they’ve been taught.  State your purpose from the beginning; that you are looking to negotiate a payment with them.

Do not get irate or use profanities no matter how upset you become.  It’ll get you nowhere, and will likely end with worse results.  Try to have the call out through to a supervisor if at all possible since they’re much more likely to reach a deal with you.

Step #3:  Keep a Record of Every Correspondence

Every correspondence or agreement you make should be in writing before you actually start making payments.  Collection agencies are notorious for telling you one thing on the phone, then forgetting that the conversation ever happened.  If you reach an agreement that you are happy with, get it in writing first.

But you may be able to negotiate a settlement with the collection agency to pay less than what you owe, especially if you’ve been in default for years. Debt relief can certainly help you, but don’t expect the type of “pennies on the dollar” settlement you might get with credit card debt.

Financial aid expert Mark Kantrowitz discusses student loan settlement options in his article titled Secrets to Settling Defaulted Federal Student Loan Debts for Less Than What You Owe.  Mr. Kantrowitz’s three major suggestions, which he said were based on his own experience in helping students obtain debt settlement help, explain the types of compromises collection agencies can offer without having to get approval from the Department of Education.

Ask for a Waiver of Collection Charges – This adds up to about 25 percent of every monthly payment after you’ve defaulted.  If the settlement is a lump sum payment of the amount due, collection agencies will often waive the collection charges, Mr. Kantrowitz said.  In such cases, the borrower would just pay the current principal and the accrued, unpaid interest.

Ask for a Reduction – Either a 10 percent reduction in the total amount due or a reduction of half the accrued, but unpaid, interest.  Which reduction will lead to a lower payoff, Mr. Kantrowitz said, will depend on your individual situation.

Get the Settlement Offer in Writing – This should be the case with any settlement agreement that you make.  If it’s done by a debt relief company they’ll make sure that it holds up legally. 

Whether borrowers in default will be able to settle might depend on their income.  If you earn enough to pay off the loan normally, for instance, you’re not likely to get a settlement, according to Mr. Kantrowitz.  And in most cases, he said, borrowers who have been able to settle have been in default for more than five years and “there just is no hope of that borrower ever being able to repay the debt.”

Even after a settlement, you won’t see a large reduction. You’re likely, in fact, to still have to pay at least 90 percent of the amount owed. “It’s a little bit of a discount – it’s not going to be a huge discount,” Mr. Kantrowitz said.

Make Payments to Yourself – You won’t always need to purchase something.  But just because you’re not actively saving for a specific item, doesn’t mean you get to go spend frivolously.  Start putting that money into savings instead.

Don’t get me wrong, this isn’t exactly a perfect scenario to make purchases.  But it certainly beats being overwhelmed with debt.  It’ll keep you on track, secure in the knowledge that you’re planning for you financial future.

The Bad

The red flags are out there, you just need to know what to look for.  Now, this doesn’t mean that what these debt settlement companies are doing is illegal.  It just means I think they’re going about it all wrong.  They’re worried more about their profit than their ability to help clients.

Large upfront fees aren’t the best way to help you get out of debt.  If they’re charging 15% – 20% of your total debt then it could take you months, sometimes years just to pay them off.  And who knows what can happen over that time.  These types of companies want to lump all of your debt into “one easy payment.”  You might need to address your credit card debts one at a time.  Find a company that’ll be able to do that for you.

Needing a minimum amount of debt just to enter their program is an ineffective way to help people.  It’s easy to see why they’d do this though: taking 15% from your $500 is only going to net them $75.  They don’t consider that worth their time.  That being said, a company with a minimum shouldn’t be worth your time.  All they really care about is lining their wallets. 

Having the debt relief company explain the legal implications of your actions is vital.  While debt collectors are usually willing to settle outstanding debts, they want to be kept up to date with what’s going on.  Avoiding them entirely might just lead to lawsuits and wage garnishment

The Ugly

If it sounds too good to be true, then you should probably sense that it is.  A recent government investigation into debt settlement companies found one particular debt representative saying “We help 100% of the people who enter this program eliminate their debt, uh, in less than 3 years.”  Obviously if you join their program you’re guaranteed to eliminate your debt.  And if you believe that I’ve got a bridge in Brooklyn to sell you.

Any company that tells you to stop paying your creditors and instead pool all of your money into an account set up to settle your debts shouldn’t be dealt with.  Ever.  This advice is just plain bad! 

What they’re not telling you is that you’re absolutely ruining your credit profile and your ability to borrow for the next several years. in fact most consumers who come to us for credit repair are doing so to fix the mess made by a debt settlement company.  Once you decide to stop paying all of your creditors not even credit repair is going to help your credit scores.  Consider those scores trashed. 

The Verdict

I’m sure that when you’re ready to do your taxes you go over your finances with your accountant.  When you opened a checking account, you probably discussed which banking products were best for you.  Your communication with a debt relief company should be the same type of give and take.  Demand a consultation to discuss your specific needs.  And don’t invest your hard earned money unless you come away feeling comfortable with the steps that both you and your debt relief company are taking to secure a better financial future.

However, just because you’ve decided to finally take care of mistakes from the past, doesn’t necessarily mean that it’s all smooth sailing from now on.  You need to formulate a plan, stick to it and avoid the most common mistakes of debt relief.

Mistake #1:  Choosing the Wrong Type of Debt Relief

There’s debt consolidation, credit counseling, debt settlement … and trust me, they’re all different.  You need to understand how each one is trying to get you out of debt if you plan on succeeding.

Debt Consolidation – You take out a loan to pay off your debts now with one low monthly payment.  The problem is that you end up paying more over time because of the length of the loan and you’re not helping repair your credit.  As a result, you won’t be able to apply for a credit card or loan for several years.

Credit Counseling – This is a somewhat beneficial service if you qualify.  The truth is that most people are considered “too far gone” for credit counseling and are advised that bankruptcy is their only option.  Since this is a service that’s largely funded by the credit card companies, they deal exclusively with credit card debt.  If you have medical bills, mortgage problems, personal loans, or anything that’s not credit card debt, then credit counseling probably isn’t for you.

Debt Settlement – Here you’ll try to negotiate with creditors and collection agencies to get the best settlement offer possible.  However companies go about it in two ways.  The first, where you put money into an account and stop paying creditors altogether is harmful to your credit and isn’t guaranteed to work. 

The second option is where a debt settlement company focuses on your debts one at a time, which generally yields better results.  You can concentrate on the more important debts and even try to have your creditors agree to remove the account from your credit reports.  Not only are you paying off your debts, but you’re potentially boosting your credit score as well.  If you can find a debt settlement company that charge about 5% of your total debt you’ll know that 95% of the money you’re spending is actually going to pay off your outstanding debts.

Mistake #2:  Closing Out Open Cards

I know that the credit cards are probably what got you into trouble in the first place and I certainly don’t think you should be using them during your debt relief process.  But closing out good accounts is a double whammy.

For starters, you lose any leverage you may have with the credit card company that you’re paying off.  If you’re not a customer they have no reason to go out of their way to help you.  It may not seem like they not doing that anyway, but if you cancel the card, their tone will be much frostier.

On top of that, closing your card may destroy your credit profile.  A large part of your credit score is made up of how long you’ve had open lines of credit.  Closing an older account can significantly hurt the average time that you’ve had good credit available to you.

Mistake #3: Giving Up Your Bank Information

Creditors and collection agencies are undoubtedly going to ask for your bank information, telling you that it’s a “convenience.”  They’ll explain that they’ll automatically deduct what you owe them each month; “you’ll never even have to think about it.”  Don’t do it. 

You can make your payments through your bank’s automatic bill pay program, use you the bank’s online payment methods, or even send a check.  But DO NOT agree to set up automatic payments where you give out your own bank information.  It gives them more leeway than you’ll want them to have when it comes to your bank accounts.

Mistake #4:  Not Sticking to Your Plan

This is the major reason that people fail when it comes to debt relief.  Whatever type of debt relief you decided on, and whatever the strategy was to get rid of your debt, stick to it.  If you keep flip-flopping on how it’s going to be done, you’ll probably never accomplish anything.

If you decide to use a company for your debt relief needs, research them with the Better Business Bureau and make sure they’re rated an “A.”  Discuss your situation in detail with them and don’t blindly agree to what they think is right.  They may have the experience, but this is ultimately your problem.  Listen to their suggestions, mull it over and then make the decision that’s best for you.

That’s right, college grads, school’s out and summer’s here at last.  Now’s the time to look back and reflect on what were effectively the best four or so years of your life.  If TV and movies have taught us anything, it’s that your time at school – whether at your local community college or one of those fancy-pants Ivy League schools – is one giant toga party after another.  The keggers are overflowing, the test cheat sheets are never-ending, and if that party-pooping Dean ever shows up to shut us down, well, that’s why we filled up all these water balloons.  Also, there may have been some light learning required at some point.

If reality has taught us anything, it’s that the morning after all those parties – the morning after graduation is over and you realize you’re really out all on your own – comes with something much worse than a hangover: Student loans.  Reality bites.

Sure, you’ve known about these loans since you started school, and you knew the day would come when the lenders would come calling, but the beer pong team needed you, and who were you to refuse?  So what’s the best way to get rid of these thousands of dollars in student loans ASAP so you can go on with your life?  Read on and take notes – you just might learn something…

1.The first thing you’ll need to do is gather your notices (you did remember to save those, right?) so you can figure out just how much you owe and to whom.  You can check any contracts you have signed as well; both will show you how much you borrowed and how much you have left to pay.  If you don’t have any of your notices or contracts, you can contact your school’s financial aid office for your records.

2. The good thing about student loan repayments is you get your first 6 months after graduation off, without having to worry about making any payments at all.  When the bills do start coming in, you’ll generally be paying at least $50 a month until the debt is repaid.  You got 4 different options for paying:

• Graduated:  This option eases you in with minimal payments that gradually increase every couple of years until the debt’s fulfilled.
• Standard:  For those who want to get rid of the debt quicker and can afford steeper payments.
• Income-based:  For anyone working commission or freelance, anyone whose income fluctuates, this option is made proportional to your income.
• Long-term:  For the procrastinators who would only pay the bare minimum for as long as possible.  The bad news here, you’ll get screwed over in interest and end up paying twice as much in the end.

3. If the job market isn’t being as kind to you as you might like, and you’re starting to feel the pressure of those student loans piling up, you might also consider applying for loan forgiveness options.  With loan forgiveness, you basically commit to volunteer work in exchange for having some (or all) of your debt wiped out.  But before you sign up at the local soup kitchen, you should realize these programs require real commitment on your part.  Here’s a quick rundown of different loan forgiveness programs:

• AmeriCorps:  A government program on civic education and public service.  Committing a year to them will get you just over $4700 to pay towards your student loans.
• Peace Corps:  I’m sure you’re familiar with them, and if you commit up to 2 years to the program, you can defer most of your student loans until you’re out, and may even get your loans reduced by up to 70%.
• VISTA:  Volunteers in Service to America is a program dedicated to fighting poverty, homelessness, and illiteracy in the US.  If you commit up 1700 hours to the cause, you’ll get $4700 to pay off your loans.
• Military service:  Should you decide to join up with the National Guard or the Army Reserves after college, you can collect a whopping $20,000 to get rid of your loans.  If you’re feeling especially gutsy, ask to be stationed in a more hostile environment for even more money.

4. If none of those options sound like anything you’d want to pursue, and you still need help paying down these large loans, and don’t want to go into deferment, you may consider consulting a debt settlement firm.  Many are skilled at negotiating easier payment plans on your behalf, which can be a big help in easing the burden and freeing up your finances a bit.

Keep these tips in mind the next time you feel violated by the amount of loans you have to repay.  Who knows, you may even have it taken care of before anyone else notices what a horrible mistake you made the night before.

The obstacle that so many Americans run into is with their home loan application.  You may have found the perfect house, you’re prepared to close the deal, but then you sit on pins and needles while some lender decides your fate. 

That’s why your decision to deal with past credit and debt mistakes should come long before you even begin looking for that perfect home.  Lenders determine whether you’re approved or denied based largely on your credit score.  If you’ve allowed blemishes on your credit report to stick around, you may find yourself scrambling to find a mortgage lender that’ll approve you in the 11th hour.

Outstanding Debt

If you have debts that are unpaid, you’re basically telling potential lenders that you’re unable to handle your finances responsibly.  You’ll want to consider paying off those creditors or collection agencies, or perhaps utilize debt relief services.  You may not be able to have those accounts removed, however an account listed as “paid” is going to appear better than one listed as a “collection account.”

Don’t let the first time you look at your credit reports be after a lender runs a credit check.  You want to be ahead of the game when it comes to what those reports are saying about you.  The older a paid collection that’s listed on your credit gets, the less impact it will have on your scores. 

Plan Ahead

Once you get the idea in your head that you’re going to want to purchase a home should be when you take a look at your finances.  Your credit reports are going to dictate how lenders perceive your ability to pay them back.  If you start verifying that all of the information on your reports is correct 6 months or so in advance, you’ll have a much better chance of coming away from the home loan application process with a smile. 

Whether you need credit repair or debt settlement is only something that you’ll know for certain.  But if you bury your head in the sand and hope for the best, you may end up disheartened by the whole house hunting process.  Make sure you’re completely prepared.  Best of luck and happy hunting!

Related Articles:

• Best way to improve your credit
• What is a good credit score
• Dispute letters that work
• Fixing credit errors

Most of them are right; they do need a little help with their credit.  However, what none of them are saying is, “I want to buy a home, but I need to take care of some outstanding debts.”  Credit repair is just as much about resolving debt issues as it is about credit repair.  You’d be surprised at how willing creditors are to negotiate and how much it can boost your credit score.

If you want to find out about our debt relief services, you can read about them here. Debt Relief

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