How can you plan an effective strategy to dig out of debt?
Problem:
Due to some idiotic financial mistakes and prolonged illness, I have not been able to keep up with my payments. Some of my creditors have assigned the accounts to the collection agencies. Anyway, I am well now and want to rectify my mistakes. I want to fulfill my financial obligations. The total outstanding balance is $54,256. My question is should I make payments to the creditor or the collection agencies? Given a choice, I would like to deal with the creditors directly. Thanks for any information.
Solution:
I am extremely happy to know that you are well now and want to pay off your debts. It is a good sign that you want to rectify your past mistakes. Don’t be too hard on yourself. It often happens with a lot of people. Your main goal will be to plan an effective strategy to clear your debts.
It is not surprising that you want to deal with your creditors and make payments to them. Most of the debtors prefer to negotiate with the creditors directly. You can certainly contact the creditors and make a written request to repay your bills. However, you should understand the fact that some of your past due accounts are with the collection agencies (CA) right now. So, there is a high chance that the creditors will not want to negotiate a payment agreement with you. They may ask you to contact the CAs and make the required payments to the collection agencies straightway.
Before contacting the creditors/collection agencies, you should at first craft a spending plan. This will help you realize the amount you can pay to your creditors/CAs every month. You can tell the creditors/CAs about the amount you can afford to pay per month/year while negotiating with them.
Once you have a clear idea about the affordable monthly payment amount, you can communicate with the creditors/CAs in writing. You can send a letter via certified mail with return receipt request, and propose a payment plan. If they happily accept the repayment plan, then you should request them to mail/fax the written agreement to you. Read the terms and conditions of the agreement letter thoroughly before putting your signature on it.
If you have no intention to negotiate with the creditors/CAs on your own, then you can approach small debt consolidation companies for help. The consultants of the small debt consolidation companies will contact your creditors/CAs and negotiate with them. They will arrange a repayment plan which you can easily afford. You can just make a single monthly payment to the consolidation company and they will disburse the money amongst your creditors/CAs.
If you don’t want to approach a debt consolidation company, then you can try for debt settlement. This debt relief option helps to slash your outstanding balances by a certain percentage. However, keep in mind that this debt relief option will drop your credit score by around 125 points.
Finally, if debt settlement does not help you repay your bills, then you may go for bankruptcy. Here, you can pay off your debts under court supervision. You will have to submit bankruptcy petition and go through the means test to know about the type of bankruptcy you’ll qualify for. If you qualify for Chapter 7 bankruptcy, then you can get rid of debt within 3-4 months. In case of Chapter 13 bankruptcy, you’ll be able to dig out of debt within 3-5 years.
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