Dealing with debt collectors
Student Loan Problems
Dealing With Debt Collectors
My husband and I have debt that is three to five years old. The debt includes back taxes and student loans. I made a deal with the IRS for monthly payments. I just recently made a deal with one of the collection agencies a couple of days before the court date for the lawsuit. I have spoken with a couple of credit counseling agencies, and they cannot help with student loans and tell me my other debts are too old. The agencies also tell me not to worry about charge offs. I have tried to work with the collection agency holding my student loans. I offered them $50 a month. They refused the offer and told me that I have to pay $300 a month. The original amount due was $8,000, but the interest has brought it to $11,500. I refinanced the student loan four years ago. I cannot afford to pay everyone at once. However, I would like to make an effort. I don't want to wait around for another company to file a lawsuit. Any advice you can give me would be greatly appreciated.
Track Your Spending
I started out with $116,000 in law school student loan debt. I have payments of $690 a month. Although I am a lawyer, I do not make much money working for the government. The money software Quicken saved my life. I kept all my receipts for several months and then inserted everything into Quicken, which told me where I was spending all my money. Through Quicken, I was able to come up with a budget and figure out which areas in my life I could spend less money or do without. I have always made my payments on time and am saving 20% of my income. I also strongly believe in saving all your change. As a single person I saved $130 in change in one year, which I then used toward groceries. Think of what you could save in change with your husband.
Show Effort in Repayment
If you have things in collections, try to check with the original lender. Sometimes, they'll allow you to make payments and apply them to your balance, even though this won't bring the debt out of collections. However, it will reflect on the amount in collections. If you do this, save any documentation, cashed checks, etc. and ask if they'll send you an updated bill. Also, write down the date, time, and name of the person you talked to for each debt record. That way, if it does come to court, you have documentation to show the judge that you're doing all that you can. This may sway things a bit more in your favor, since you are making a reasonable effort to pay the debt. Instead of a garnishment or bank-freeze, they may instead rule that you repay via a more reasonable payment plan.
Jess F. in Boston, MA
You Can Do This!
I know this is a scary time, but it can be done. My husband and I are working on what used to be $50,000 of debt. We started chopping away at it at two years ago. We are currently at $32,000. For us, listening to Dave Ramsey's talk show is what got us motivated. He has several books out and he's on hundreds of radio stations throughout the US. He teaches that you need to get fed up and so sick of debt that you basically scream, "That's it, I've had it, never again!" Once you get to the point where you refuse to buy one more thing on credit, you start to win.
Write everything down on paper and call it a budget. Don't use any of the money that comes in unless it is on that paper. You may rewrite the budget every month because every month may be different. By writing it down you're telling the money where to go. Think of it as a financial diet.
He talks about the "Debt Snowball." This is where you list your debts smallest to largest and pay the minimum on all but the smallest. The smallest you attack with a vengeance as if your life depended on it. When that one is paid off, go to the next and so on.
He talks about getting a second job like delivering pizzas, which my husband is doing. It's about sacrificing now, so you don't have to live the rest of your life in debt or as Dave Ramsey would say, "Living like no one else, so you can live like no one else." Dave is a multi-millionaire twice. He made his millions when he was in his twenties, lost it all, and made it again the second time living these principles. He is a man of high integrity and I have listened to him give out hundreds of free books, Financial Peace classes, and even books that weren't written by him to callers. Check him out. He'll also be able to tell you how to talk with your creditors and what may be the best course of action for you.
Lisa in Pittsburgh, PA
Pay Something, Anything
I, too, was once drowning in debt. The important thing to remember right now is that agreements mean nothing. Your actions will speak louder than words. The first thing to do is figure out how much you can afford to pay regularly. (I find that budgeting for every two weeks, with the pay cheque, is easiest for me.)
I divvy up the payment to match the debt. For example, if student loans are 50% of my debt, 50% of my payment goes towards them. My minimum was $5. I'd always send at least that much. Then write the cheque and send the payment, even if they say they won't accept it. I've never had a cheque returned. Better yet, pay it online. The important thing is to pay them something, even if it's $5. This way, even if they do go to court, you can show, by your actions, that you are committed to repaying the debt. Any judge will see that and cut you some slack. The agencies know this; they are very likely to let you slide until you've paid off some of the smaller amounts and can increase your payment to them. They may not bother with the lawsuit if you've made it less likely for them to win by your payments. Once you've made a few payments on a regular basis, the tone of the collectors will change. They know you're committed, and not just another person promising something they never follow through on.
When you pay something, anything, regularly you will make progress. Don't give up and don't miss payments. Missing payments destroys your credibility. Keep going and you will get out from under the debt.
Elizabeth J. in Toronto, Ontario
You Need an Advocate
Get a lawyer. Not necessarily one that promises to settle for pennies on the dollar, but someone that can negotiate for you and help you come to an agreement with your various creditors. At this point, it sounds like you need an advocate. If the cost is too much, check with local community agencies for free or low-cost legal help. And of course, figure out what you can do to raise the scratch to make the monthly payments.
Don't Give Up
First, make sure you have a written budget. As the old saying goes, people don't plan to fail, they fail to plan. Prioritize the debt. Of course, the IRS should be first after rent/mortgage, lights and food. The student loan collection agency might not have agreed to the $50/month, but I doubt they would return any amount you send. Don't forget about "found money." Have a yard sale, put larger items on eBay, etc. Or take an extra part-time job. Deliver newspapers or pizza for a few months. Just don't give up!
Know Your Rights
Depending on the state in which you live, the Statute of Limitations for most of the debts may have passed or is very close to doing so. The debts you cannot ignore are the student loans and the back taxes. Find out what the Statute of Limitations is.
Make a payment plan that focuses on housing, utilities, food and transportation. You may need to include a small amount for clothing repair/replacement also. After all these "essentials" are covered, then include the taxes and student loans. If you haven't already consolidated the loans, do so. Also, you may want to check into an "income contingent" repayment plan. That cuts the payments considerably.
Now, you can figure out how much money you have left to pay the other bills that are in collections. You do have rights under the law and the collection agencies cannot threaten you or harass you. The Fair Debt Collections Practices Act provides procedures to follow when dealing with collection agencies. You may be able to negotiate the debt payment at 30% of what is owed. Collection agencies pay the original creditor pennies on the dollar and they try to get the total owed. That's how they make their living. However, you want to make this offer in writing and not send a payment until you and they have reached a mutually acceptable agreement. Keep copies of all communications in a safe place.
Usually collection agencies file lawsuits because they're getting short on time to collect. If the SOL has run out, that's your defense because they cannot attempt to collect then. Many people do not know their rights.
Take the Next Step:
- Am I a good candidate for credit counseling?
- Am I a good candidate for bankruptcy?
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