Debt Collection

 

Written By Ellise Walsh

Fri 3/18/2005 11:26 AM

How you feel about the subject of debt collection probably has a lot to do with whether you are the debt collector or the debt collectee. Given the high rates of personal debt carried by many people today, coupled with the low savings rate, it is no wonder that the business of debt collection is booming.

Most creditors will make several attempts to collect the money they are owed before they turn the debt over to a collection agency. Likewise, if the amount owed is very small, many creditors will not bother turning the debt over to a collection agency. Collection agencies take a cut of all the money they recover, so it may not be cost effective for a creditor to attempt to recover a very small amount.

If the amount owed is substantial, however, you can expect to hear from the debt collection agency repeatedly. They will call you at home and at work, as well as sending countless letters and attempts to collect.

Even if you cannot afford to pay the entire amount due, it is most likely in your best interest to contact your creditors and try to work out a payment schedule that they can accept and you can afford. The worst thing you can do about your debt is nothing. By doing nothing, you are simply allowing your debt to accumulate and compound until it becomes totally unmanageable.

If you let this continue long enough, you may leave yourself no other choice but to file bankruptcy. While bankruptcy may seem like an easy solution to a complex problem, it is not the panacea you may think. Your bankruptcy filing will follow you around for many years, and you may not be able to get the credit you need to purchase a car, buy a home, rent an apartment or even land a job. Your credit report is available to employers and landlords as well as potential lenders. The information in your credit report can affect your life in ways you never thought of.

Dealing with creditors and debt collectors is never a pleasant experience. No one daydreams about the wonderful conversations they will be having with their debt collector. Nevertheless, dealing with and eliminating your debt is vital to securing your financial future. It is important to deal with your debt before it becomes unmanageable.

The best place to start is by making a monthly budget and sticking to it. Creating a monthly budget is a crucial first step to get your spending under control. It is absolutely vital that you know where each penny is going if you are to get your financial house in order. Take a hard look at all your spending and determine where you can cut back. If you absolutely cannot cut back, you may need to seek a part time job to make up the difference between what is coming in and what is going out. Either way, having a budget and sticking to it is vital.

Sit down and make a list of exactly how much you owe and to whom you owe it. Get the telephone number of each of your creditors and call them to discuss a reasonable repayment plan. Most creditors will be willing to work with you to ensure that they get the money they are owed. They know that if you are forced into a bankruptcy filing they will get nothing, so they may be willing to lower your interest rate or negotiate a lower amount for repayment.

Keep track of what each creditor is willing to agree to and make sure you can afford the payments you have negotiated. Once you have negotiated terms that are affordable to you, make the payments religiously. This is where your budget will come in handy. You can look at your monthly budget and use it to determine which items are necessities and which are luxuries. You may have to substantially cut your monthly expenses to pay off your debt, but it will be worth it in the long run.

The final step is also one of the most important. Once you have paid off your outstanding debts and gotten the debt collection agencies off your back, you need to be careful not to incur any new debt. You probably already have a good idea of how much money is coming in each month. Use your budget to make sure you are living within your means.