It is not necessarily the end of the world — or the end of your credit — when a company turns your credit card account over to collections. There are productive ways to deal with credit card debt even after the company turns an account over to collections. The best advice? Never ignore notices from a debt collector. Ignoring the collection calls can damage your credit report and make obtaining future credit difficult to obtain.
Call the credit card company to ask if it is handling the account "in house" or if an outside agency is controlling the collection. Typically, if an account is less than 90 days late, your credit card company still controls the debt and can still accept payments on the account, according to CTwatchdog.com. Ask for the phone number of the collection agency if the credit card company states that the account is with an outside agency.
Negotiate a payment plan with the original creditor if possible. Credit card companies are often willing to lower your interest rate and your payments to assist you in times of financial hardship. According to the Federal Trade Commission, when speaking with the creditor, your goal is to get your payment to an amount that you can pay. While credit card companies do not publicize their requirements for accounts that they will negotiate on, many lenders will work with customers at the first sign that the customer is having problems, according to a 2009 Washington Post article.
Call the collection agency and ask for information on the account such as the name of the account, account number, balance and original creditor. Request that the agency send you all of the information in writing if it has not already done so.
Make arrangements with the agency to make payments on your debt if you cannot pay the full amount. Inform the collector that you will send in monthly payments by money order or wire transfer. If you provide the collector with your bank account information, you risk having your account frozen if the agency sues you for the debt, according to Lawyers.com. Make sure that you receive a copy of any agreement terms in writing before you pay.
Request a settlement if you have the funds available to pay the debt. According to the San Diego Police Department, debt settlement is the process where the consumer negotiates an amount that is less than the balance in exchange for paying off the debt within a few months. While there are companies that exist just to negotiate settlements, the FTC warns against using an outside negotiator if the charges are too high. A better alternative is to negotiate the settlement yourself. According to the FTC, account holders can save as much as 30 to 70 percent by making a one-time payment but may owe income taxes on the forgiven portion of the debt. The settled debt will appear on your credit report for up to seven years and, initially, lower your credit score up to 125 points.
- The Fair Debt Collections Practices Act outlines the regulations that outside collection agencies must follow when attempting to collect a debt. (Ref 5) If the collector violates the law, report the violations to the Attorney General's office in your state and the Federal Trade Commission.
- In any negotiation, ask the creditor or agency to remove negative information from your credit report in exchange for payment.
- Get all agreements in writing before you begin making payments or paying the full debt.
- Debt settlement can appear on your credit report and lower your credit score.
- NYC Department of Consumer Affairs: Debt/Credit Help - Getting Out of Debt
- Ctwatchdog.com: What Consumers Should Know About Credit Card Debt
- Federal Trade Commission: Settling Your Credit Card Debts
- Lawyers.com: Bank Account Seizures
- Federal Trade Commission: Debt Collection FAQs - A Guide for Consumers
- San Diego Police Department: Debt Settlement
- Federal Trade Commission: Knee Deep in Debt
- The Washington Post: Credit Card Firms More Willing to Negotiate With Customers
- Federal Trade Commission: Settling Your Credit Card Debt
- NJ.com: Settlement Negatively Affects Credit Score
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