Dear Debt Adviser,
Hello, I was very good at paying my bills on time but I lost my job and fell behind. Instead of contacting the creditors, I ignored them. Now, I have many bills that have been turned over to collection agencies. I am now working again and want to pay the debt, but I am not sure of the best approach to resolve the debt. Please help me.
I am glad to hear that you have won the employment lottery and are in a position to begin repairing the damage caused by your unemployment and inability to pay your obligations. Before we get to how best to begin to resolve your debt mess, I want to take just a minute to comment on your past actions for readers who may find themselves in the same predicament.
It is never a good idea to ignore your creditors. Picture a train moving down a track. The farther the train travels, the faster it goes. Well, your debts are also traveling down a track toward debt collection. It moves from a company's in-house collections department to a collection agency to a lawyer and then to a judge. When it finally comes back to you, it's going 100 miles an hour as it hits your paycheck with a garnishment order.
Timely communication can slow the progress of your debt and give you more time to deal with it successfully. Even when you believe you have nothing to communicate because you are unable to pay, just the act of communicating your situation can keep a debt from going to a lawyer if the collector can tell the supervisor that he or she is working with you and you are responding.
For example, had you communicated with your creditors to let them know you were unemployed and without an income, they might have been willing to work something out with you. They might have delayed the collection process when they realized there was nothing they could garnish. Because you did not communicate with them, the accounts were viewed as uncollectible and moved further down the track. As a rule, as long as the creditor isn't abusive or foaming at the mouth, communication can serve you well.
Now to your question of the best approach. Before you speak or write to your creditors, I suggest you determine how much you can realistically afford to pay each month. Begin with a quick budget that includes all your income and expenses, and be sure to include some money for an emergency savings account each month.
Ask a trusted friend to look over your budget to challenge any of the assumptions you have made and help you to cut any fat. Don't ask your mother to do this, as most mothers -- mine included -- will say you need to eat more and should increase your grocery budget. Once you know the amount per month you can afford to pay, contact the collectors and begin negotiations.
Many collectors will, at first, hold out for a lump-sum payment. Expect some disbelief. You're on their books as a deadbeat. It's up to you to change that perception. If you cannot afford to pay the lump sum, you will need to convince the collector that you will faithfully pay the amount you can afford each month.
If you find you are unsuccessful at negotiating with the collectors, you might consider professional help. An accredited, nonprofit credit counseling agency, or an attorney experienced in dealing with collectors, should be able to assist. I strongly suggest that you stay away from debt settlers.
If you receive a summons to appear in court regarding any of your accounts, be sure you show up and take an experienced attorney with you. Take copies of your budget and tell your side to the judge. And remember, I've said this a thousand times, "Unlike fine wine or my wife, debts do not improve with age!"
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