How To Dispute A Debt Collection
Sometimes a debt collector will come after somebody for money they never spent. If your ex-spouse, for instance, racked up credit card debt during your marriage, it may be something that you are legally both on the hook for.
If this is, say, a siblings debt, this may simply be a case where you were put down as a reference in case the money wasnt paid. If the debt isnt yours, its probably best to dispute it.
Create A Debt Repayment Plan
You can also ask the collector if you can pay what you owe back with a payment plan. With a short-term payment plan, youll pay your debt back on a fixed schedule with set payments. You could also consider a debt management plan, which helps set up monthly payments to be paid to your collectors. Make sure to consider debt management plan pros and cons to see if this is a good fit for you.
How Long Do Debt Collectors Have To Collect A Debt
Unpaid debts are considered time-barred, which means that if a debt collector doesnt collect a debt you owe by a certain number of years , you cant be sued over the debt.Ethically, of course, you still owe the debt, and a debt collector can, pretty much until the end of time, still send letters and make phone calls, entreating you to pay up.
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Pay Your Debt In Full
While it shouldnt be your first option, you could potentially pay the debt in full to close the account and start anew. The sole benefit of paying your debt in full versus trying to negotiate is that it will reflect better on your credit report.
However, as mentioned earlier, when you settle the debt for a lump sum, you may be able to negotiate with the debt collector to have them report your account as paid in full rather than settled. This means you could save money and still get the benefit of a positive mark on your credit report. If you have a significant amount of debt in collections, its worth trying to negotiate a lump sum settlement.
| Pros of paying a debt in full | Cons of paying a debt in full |
| Your debt will be marked as satisfied in full as opposed to settled on your credit report | Youll end up paying the full debt when you likely could have settled and paid less |
| Youll prevent legal action, including a lawsuit and wage garnishment | Youll have to come up with the entire lump-sum debt balance |
| Youll get a fresh start without debt collectors hounding you for money | Theres no guarantee that youll see your credit score improve |
Verify That The Debt Is Yours
Dont make payments until you verify that the debt is accurate and is actually owed by you. Make sure that the stated amount is correct and that the collector is legitimate. You should ask for a validation notice from the collector in question and check them out with the Better Business Bureau or your state attorneys office.
Youll also want to look into your states debt statute of limitations, which puts a time limit on how long debts can be actively collected upon. In some states, debts can be reactivated if you make partial payments or contact the collector. Double check that the debt hasnt been erased through bankruptcy or other methods.
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Relieving Credit Card Debt
Account holders can request a reduction in their annual percentage rate . A survey conducted by the U.S. Public Interest Research Group in March 2002 found that among its fifty participants, including people of all credit backgrounds, who contacted their credit card issuers, 56 percent received a lower APR. On average the percentage went from 16 percent to 10.47 percent.
Due to the start of the Great Recession in December 2007, multiple credit card debt relief options became widely popular for consumers living in the U.S. with unsecured debt totaling over $5,000.
The various debt relief options available in the U.S. include:
Although each of these debt relief options deals with credit card debt specifically, they are also able to deal with other types of debt including personal loans, medical debt, accounts in collections and more . Still, these programs have not been enough to help enough Americans get out of debt, resulting in a government call-to-action by economists for a massive debt bailout.
In addition, credit card issuers are now required to disclose to the consumer how much a balance will take to pay off if only the minimum payment is made on their billing statement.
What Do I Need To Know If Im Thinking About Consolidating My Credit Card Debt
When you consolidate your credit card debt, you aretaking out a new loan. You have to repaythe new loan just like any other loan. If you get a consolidation loan and keep making more purchases withcredit, you probably wont succeed in paying down your debt. If youre havingtrouble with credit, consider contacting a credit counselor first.
Consolidation means that your various debts, whether they arecredit card bills or loan payments, are rolled into one monthly payment. If youhave multiple credit card accounts or loans, consolidation may be a way tosimplify or lower payments. But, a debtconsolidation loan does not erase your debt. You might also end up paying moreby consolidating debt into another type of loan.
Before you use a consolidation loan:
- Take a look at your spending. Its important to understandwhy you are in debt. If you have accrued a lot of debt because you are spendingmore than you are earning, a debt consolidation loan probably wont help you getout of debt unless you reduce your spending or increase your income.
- Make a budget. Figure out if you can payoff your existing debt by adjusting the way you spend for a period of time.
- Try reaching out to your individualcreditors to see if they will agree to lower your payments. Some creditors might be willing to accept lower minimum monthlypayments, waive certain fees ,reduce your interest rate, or change your monthlydue date to match up better to when you get paid, to help you pay back yourdebt.
Home equity loan
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What Is A Credit Card Debt Settlement
A settlement is when a credit card company forgives a portion of the amount you owe in exchange for you repaying the remaining amount. The remaining amount can be repaid in a single payment or over a series of payments.
Keep in mind:
- If your account has not already charged-off before you accept your settlement offer, then it will be permanently closed once you do accept the offer. This means that you will not be able to reopen the account and you cannot regain use of the card.
- The settlement may be reported to the credit bureaus. While it isnât possible to say exactly how a settlement will affect your credit report, your settlement and payment information likely will be reported to the major credit bureaus as âsettled in full for less than the full balance.â This can stay on your report after youâve paid the settlement in full.
Before deciding on a settlement: You can always reach out to your credit card company to see if they are able to work with you. According to the Consumer Financial Protection Bureau , âsome creditors might be willing to…waive certain fees, reduce your interest rate, or change your monthly due date to match up better to when you get paid, to help you pay back your debt.â
Borrow From Your Retirement Plan
Sure, it can be done, but its low on the list of good alternatives. Raiding your IRA or withdrawing money from your 401 is not a prime option, since there is a 10% penalty if you withdraw money before age 59½. Plus, youll have to pay income tax on any of the money you take out of a traditional IRA. The rules for a Roth IRA are a little different, but you could still be subject to taxes if you withdraw money early.
Between the high fee and taxes on the money withdrawn, youll likely pay more for the credit card debt youre trying to eliminate. Throw in the interest accumulation lost, and youve got less money for your retirement.
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Work Out A Payment Plan With The Debt Collector
Debtors with a significant amount of debt in collections may not be able to make a lump-sum settlement payment. The next best option may be to work out a payment plan with your debt collector, although you probably wont get as steep of a discount on your debt as you would by paying in a lump sum.
Most debts in collections do not continue to accrue interest, so you may be able to work out a payment plan in which you only pay the principal balance. But if your account does still accrue interest, then your debt balance may grow if you spread the payments out over a longer period of time.
| Pros of entering a payment plan | Cons of entering a payment plan |
| You wont have to come up with a lump sum to pay the debt | You likely wont get a discount thats as high as if you pay in a lump sum |
| Youll prevent legal action, including a lawsuit and wage garnishment | If you cant stick to your payment plan, you become delinquent again |
| You may still get a discount on your debt balance | If your debt continues to accrue interest, then youll pay more than what you owe over time |
After Your Judgement Is Paid
Once you have paid a judgement in full, the judgement should be discharged at the Court of Kings Bench and at the Personal Property Registry. Check to make sure this is done. You should also let the credit bureau know that you have paid the debt. They will enter this information on your credit record.
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Errors Happen Dont Let Them Happen To You
To offer some eye-popping context: Since 2015, through the , more than $10.2 billion in erroneous debt has been removed from TransUnion® credit reports.
See an error? Make sure you reach out to both the lender that issued the inaccurate information and the credit bureau thats reporting it. Its also good practice to notify all three major consumer credit bureaus to make sure the mistake isnt repeated.
If you have questions about whether youre liable for a debt, it can be helpful crucial, even to consult with a and a lawyer.
You may also want to review the rights afforded to you by the Fair Debt Collection Practices Act, which aims to end abusive debt collection practices by debt collectors.
A Call From A Debt Collection Agency Is A Call Nobody Wants To Receive But If You Become Significantly Delinquent On A Debt You May Need To Deal With A Debt Collection Agency In Order To Pay Back The Money You Owe
Before we go any further, lets agree on one thing: Unpaid debts can be stressful and confusing. You may not even be sure how your debt ended up with a debt collection agency in the first place. But its important to look beyond the potentially intimidating letters and phone calls to understand whats really happening and come up with a solution that works for you.
In this article, well go over how to make a payment to a debt collection agency. Heres a basic outline of the steps, in case youd like to jump ahead.
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What If You Ignore A Charge
Even though your original creditor has taken a tax write-off and closed your account, you still owe the debt. If you completely ignore the charge-off, the creditor or a collector that purchases the debt and potentially get a judgment to garnish your wages or pursue other legal actions.
If possible and you have the means to pay at least something, then it may be in your best interest to avoid the risk of getting taken to court.
Work with a debt relief specialist to find the best way to deal with your debt.
What Is A Debt Collection Agency
Debt collection agencies are hired by lenders and creditors who need help getting their money back from borrowers who have defaulted on their payments. This agency or individual will first send you a letter outlining that your credit account has officially been placed in collections and that you should start making payments again to avoid consequence.
What is loan default? Read this to find out.
Once they have sent the first letter and have waited a few days without a response, they are now legally allowed to start calling you to ask for payment and to provide you with all the information you need about your debt. Not only that, but if they are unable to reach you, they can also legally begin to call your friends, family, and neighbours. Dont worry, this will only be to request your new address or phone number. If enough time passes and they cant reach you or you refuse to make your payments, they can take legal action if they deem it necessary.
To learn more about the debt collection process in Canada, look here.
Here are some important questions to ask your debt settlement company.
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How Can I Stay Out Of Credit Card Debt For Good
Once you pay off credit card debt, it can be easy to get back into the cycle if you repeat old habits. You can avoid this with a few simple tricks: maybe you set aside specific amounts of cash for your daily purchases, or keep only one or two credit cards and pay back the full statement balance every month. And if you are using a Membership Rewards® enrolled card, pay for almost anything with points with Use Points for Purchases2.
Choosing the right type of credit card for your needs can also help you stay on track with your goals. American Express offers a variety of Cards with different benefits that suit a range of financial needs. Here are a few options that can help you get what you want.
- No-annual-fee cards: These Cards often come with fewer rewards and benefits, but you wont have to pay an annual fee every year.
- Cash back cards: The SimplyCashTM Preferred Card and the SimplyCashTM Card from American Express® SimplyCash Cards let you earn cash back on each qualified purchase, which youll receive as an annual statement credit.
- Rewards cards: These Cards earn points that can help you maximize your budget. With the right credit card and the right budget, you can earn points towards eligible purchases.
Looking For Debt Relief Options Related To The Coronavirus
If youre having a hard time making payments because of the COVID-19 pandemic, youre not alone. Millions of Americans have experienced layoffs, furloughs and cut hours at work, which may make it difficult for many to pay rent, mortgages, auto loan bills, utilities, credit card bills and more.
Fortunately, the federal government, some mortgage and auto lenders, along with some credit card issuers have announced measures that might help relieve some financial burden and help you manage your payments and debt. Below is a summary of those resources.
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How To Remove A Charge
After you have a charge-off, there are a few options to remove it from your credit report, although the results are not guaranteed. If the charge-off was legitimately incurred, in most cases, you simply need to wait it out of the information to drop off your credit report. That will happen seven years from the date the account first became delinquent.
Forgiveness Of Credit Card Debt
A Collection Agency or Credit Card issuer may choose to forgive the entire debt completely relieving the debtor of the entire amount owed. However, this results in a tax form sent to the debtor which requires the debtor to file the 1099 C form along with their taxes. The amount reportable varies from state to state.
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Be Aware Of Debt Collection Scams
Debt collection scams are real, and scammers may use anxieties about debt in order to pressure you into paying. Watch out for supposed debt collectors withholding information, calling you late at night, threatening jail time or asking you to pay with a prepaid card.
Confirming both your debt and the collection agencys right to your payments goes a long way in protecting you against potential fraud. Never give anyone access to your bank account. Instead, pay with certified checks and keep detailed records of your payments along with your original agreement.
If you think a debt collector has broken the law, report them to the CFPB. You can also sue them in federal court within one year of when they broke the law.
Calculate How Much You Can Afford To Pay
Say youve determined that you do, in fact, need to repay your debt. Next, youll want to start thinking about what it will cost you to do so.
Before having a conversation with a debt collector, review your budget to see how much you can realistically afford to pay.
Its crucial to do this first, since failing to uphold your repayment agreement could restart your seven-year period of credit reporting and restart your period of legal liability.
The best payment option depends on your personal circumstances. Generally speaking, you have two payment options.
- Lump sum payment, or paying off all your debt at once, is the fastest way to resolve a collection. Its typically the most cost-effective, too, since it could give you leverage to negotiate a lower payment amount. But be warned that settling an account for less than the full balance owed may not be ideal in terms of your credit. Since you didnt pay off the entire debt as agreed upon originally, your lump sum payment may not have as positive an impact on your credit scores as paying the original account in full.
- Installment payments can help you manage the financial burden of repaying a large debt by spreading it out into monthly installments. But this option can put you at risk of restarting the statute of limitations on a debt and restarting the time period for how long the negative information continues on your credit reports.
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