Benefits with County of San Diego

Creditors and Debt Settlement Companies

Communicating With a Creditor

If you are struggling to make your debt payments or you feel like you might start to miss payments, it might be time to contact the creditor yourself to work something out. Creditors do want to hear from you if you think you won't be able to pay them. It's even recommended to contact them before you have missed a payment if you do feel like you will have a hard time making the upcoming payments.

Before you call, it would be wise to have a plan. Have solid numbers in mind, and don't just call expecting that the creditor will help you out. You have to be prepared to provide good reasoning for needing help. Don't avoid the creditor, either. That will only make the situation worse.

Develop a plan.

First, know what your priorities are and how much those are costing you. This is where having a budget can really help you out. You should be sure that any income you make goes toward your basic needs before you send any money to a creditor. Those basic needs are going to be rent or mortgage, utilities, food, costs to get to work, and so on. Any money left over is the money you can use for your other debt obligations. Eventually, even these debts are going to have a priority. If you have a car loan and that is how you rely on getting to work, it may mean that loan debt is going to get paid before your credit card debt.

If you truly have nothing left over to send to your creditors and you have made as many cuts as you can to your basic needs, then you should communicate this to them as well. Creditors may be able to reduce or eliminate your monthly debt payments for a period of time to help you get through this financial hardship.

Once you know your priorities and how much those are costing you, you should have a good picture of what caused you to not be able to make the normal payments anymore. If you were laid off, explain that. If you went through a messy divorce causing you to lose part of the household income and incur some unexpected legal fees, let your creditors know. If your company decided to decrease your wages due to the company's poor performance, tell them. Even if you simply decided to overspend on your credit cards, let them know. It can also help your case to provide some type of proof. Be prepared to send copies of documentation that supports your claim, like a pay stub that shows lower wages than what you used to get. Have you been a loyal customer for a long time and always made your payments on time until now? Be sure to bring that up when you call.

Now that you know what your priorities are, how much those priorities are costing you, how much money you have left over to send to your creditors each month (try to get real figures here), and what caused you to not be able to make your normal payments anymore, it is time to get on the phone with the creditor.

Calling a creditor can be intimidating for some people, while others don't feel that way at all. Wherever you fall, here are some tips to help you have a successful call.

• Before you go too far with the representative who picks up your call, be sure the person you're speaking to can make real changes for you. Ask if he or she has the ability to lower the annual percentage rate (APR) on your credit card. If that person cannot, ask that you be transferred to his or her boss or someone who can. When you do reach someone who can make a decision, get that person's name, department, and mailing address.
• Be courteous, and keep your composure. If representatives are rude, kill them with kindness. Arguing rarely results in success.
• Be honest. Creditors have heard it all. Don't be overly emotional about your situation. Most people go through hard times, and your story will most likely not be any worse than what a lot of people have gone through.
• If calling a creditor is too terrifying for you, seek out support. This could be something as simple as having your friend or loved one sit with you while you call.
• Be sure to get something in writing if any new deal is made. It is also recommended that after your conversation you send a follow-up letter that summarizes what was discussed. Be sure to include your information and the account information, and direct the letter to the representative you were talking with. Be sure to send the letter by certified mail so you have proof.
• Keep in contact with your creditors after new agreements have been made. Also review your statements to make sure that they are keeping their word.

Debt Settlement Companies

If you find yourself unable to get anywhere with your creditors on your own, another debt management option is paying a debt management company. For a fee, a debt management company will take over the settlement process for you. This can be beneficial; however, there are often a lot of things to consider if you decide to go this route. Here is a common scenario that might lead to using a debt settlement company.

Let's say you have a few debts. One is a credit card debt of $5,000, and two are accounts in collection, each at $2,000, for a total of $4,000. You are current with the credit card debt but can only make the minimum payments and are feeling overwhelmed with how long it will take to pay off the whole balance. The collection accounts are just sitting on your credit, and the collection agencies are threatening to sue if they aren't taken care of. You decide it's time to get some professional help. You see an ad on TV for a debt settlement company promising that it can settle your debts for more than half of what you owe. You decide to call and see how to start this process. The debt settlement company says it will gladly help you reduce your overall debt burden. Representatives tell you that they believe that they can get the credit card debt down to $2,500 and the collection debts down to $500 each. These numbers get you excited, and you decide to work with the company.

It's important to know that when you try to settle debt, you will typically need to be able to make either a one-time lump sum payment or a very short succession of payments to the creditor for it to accept the settlement deal. Oftentimes, you won't be able to do that when first contacting the debt settlement company, so the company will accept monthly payments from you that it then turns around and deposits into a trust account. The idea is to build up the amount in the account that the debt settlement company believes it can get the creditor to settle for, and then it will actually start the negotiations with the creditors. The monthly payment depends on the size of the debt and how much you are able to contribute each month. Sometimes, this can take several years to accomplish. The settlement company will also encourage you to stop making payments to the creditor while making payments to the company. Be careful! This can be disastrous for your credit and can possibly cause legal issues. The creditor could still sue you for the debt that you've stopped making payments on, even though you are making payments to the settlement company. The monthly payments to the settlement company will also have fees. Recent regulations, however, do not let the settlement company keep those fees unless the settlement actually goes through.

It's hard to say for certain how low debt settlement companies will be able to negotiate your debts. It will vary on the company and who your creditors are. Most debt settlement companies will have preexisting relationships with creditors, so they know about how much they can settle the debt for before the negotiations even start. Settlement can be a risky venture, and sometimes the fees charged end up costing more than what the company was able to negotiate the settlement for.