Before settling bad debts, consider the available options for repaying them.
Gather Information About Your Debts
The first step in repaying old debts is to know the amount owed and the party you owe it to. So, start by making a list of overdue debts that include:
- The amount due
- The name of the creditor and their contact information
- The date of the last payment
Your credit report can be a good source for finding this information if you do not have recent data from creditors or debt collectors. You can obtain a free copy of your credit report from each of the three credit bureaus through AnnualCreditReport.com.
Check your credit reports for any errors, and report any incorrect information you find to the relevant credit bureau.
Again, keep in mind that some old debts may be past their statute of limitations. This means that the time period for taking collection actions against you has expired. The time period varies from state to state, but it is typically between three and six years from the date of the last payment.
If you have a debt that is close to the expiration of the set period, it may not make sense to pay it off since it cannot be sued on anymore. However, overdue debts may still appear on your credit report for up to seven years. For decisions like these, the FTC recommends speaking to a lawyer.
In some states, making a partial payment or even agreeing to pay off an old debt may reset the statue of limitations clock.
Creating a Debt Repayment Plan
Once you have identified the old accounts you want to pay off, the next step is to determine how to repay the overdue debts. You can do this on your own, or you can create a debt repayment plan with the help of a credit counselor.
On Your Own
Dealing with the creditor or debt collector on your own is the most straightforward approach. Essentially, you will communicate with the creditor or debt collector to discuss repayment plan options.
The main advantage of doing this is that you may be able to stop any collection actions that are underway against you, including threats of a lawsuit. However, it is important to have a strategy in place before you start so that you do not find yourself pressured to commit to paying more than you can afford.
So before contacting your creditors, consider the following points:
- The amount due
- What you can afford as a monthly payment
- How long you think it will take to pay off the old debt
Be aware of your rights. By law, debt collectors must inform you of the amount owed and the name of the original creditor. If you feel that a debt collector is violating your rights in any way – for example, refusing to provide information or harassing you – you can file a complaint with the Federal Trade Commission.
With Help
If you do not feel comfortable dealing with creditors or debt collectors directly, you may consider getting help through credit counseling services. Credit counselors can review your budget and financial situation to help you select a realistic strategy for repaying overdue debts.
They can also help you create a debt management plan in which you make a single payment to a credit counselor each month. The credit counselor then distributes the amount to your creditors.
This can simplify how you repay debts when you have fallen behind. But your success depends on your ability to stick to the plan and the willingness of creditors to accept it.
Be wary of any credit counseling service that asks for large upfront fees or makes promises to resolve your debts in ways that seem too good to be true.
Settlement
Debts for Less Than What You Owe
Debt settlement is an alternative option to pay off overdue debts. With debt settlement, you ask creditors to accept a lower amount than what is owed and forgive the remaining balance. You can negotiate a debt settlement on your own or with the help of a debt settlement company.
On Your Own
Negotiating a debt settlement on your own starts with creating a list of your debts to identify:
- The total amount owed
- How far behind you are on payments
- What you can afford as a settlement offer
Creditors may expect you to provide a lump sum to settle the debt. For example, if you are trying to negotiate a reduction of a $5,000 balance to $3,000, you may need to have $3,000 in cash to complete the deal. Other creditors may allow you to break the settlement into several smaller payments.
This may help you resolve debt in collections, but it does not guarantee the removal of negative account information from your credit report. According to current credit reporting laws, accurate negative information can only be removed over time.
With Assistance
Debt settlement companies or debt relief companies can negotiate debt settlements on your behalf, usually for a fee. This can save you the hassle of having to negotiate with your creditors yourself.
But it’s important to know what you’re paying for, as debt settlement companies can’t necessarily get you a better deal than you could achieve on your own.
Just like with credit counseling services, it’s important to research any debt settlement company you consider working with to make sure they are legitimate. Avoid any company that requires an upfront payment or makes guarantees that they can settle your debts.
Finally, hiring a debt settlement company may be less than ideal as companies often require you to stop making payments on your debts, which can negatively affect your credit score.
Studies have shown that old debts can be a financial and emotional burden. However, you can take steps to pay off these debts and improve your financial position. Gather the necessary information about your debts, work on creating a repayment plan that suits you, and explore settlement options if needed. Alongside that, you can work on improving your financial habits to avoid future debts and maintain a healthy financial situation.
Source: https://www.thebalancemoney.com/how-to-pay-off-old-debt-2385870
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