An Introduction to the Fair Debt Collection Practices Act

Are debt collectors wearing you down with the constant letters, calls, and texts? If their actions are borderline intrusive, it may be possible that they’re violating your rights under the Fair Debt Collection Practices Act (FDCPA).

But what is the FDCPA, how does it work, and how does it protect you when dealing with debt collectors? Keep reading to learn the answer to these questions and much more.

What is the Fair Debt Collection Practices Act?

Enacted by the federal government in 1978, the FDCPA regulates how debt collectors interact with consumers to collect on delinquent debts.

The rules set forth in the FDCPA are only applicable to personal unsecured and secured debts. These include personal loans, credit cards, mortgages, auto loans, and student loans. However, consumer protections do not extend to business debts.

Under the FDCPA, debt collectors are also given the ability to use legal channels to recoup the funds owed by debtors. And some instances, they may file a lawsuit to collect what they owe, obtain a judgment, or get a court order to garnish your wages from your paycheck. (Please note that federal benefits typically aren’t eligible for wage garnishments that are related to consumer debts).

What Are Your Rights Under the Fair Debt Collection Practices Act?

As a debtor, you are afforded many rights under the FDCPA when dealing with collection agencies. For starters, you have the right to receive a written verification of any debt you allegedly owe from the debt collector before you commence payment.

The debt collector must also send you a written notice that details key information about the debt, including the creditor’s name, the amount you owe, and instructions on how to move forward if the debt doesn’t belong to you. This should be done within five days of initial contact.

If you decide to start making payments towards the debt, you have the right to choose how those funds will be allocated. This is applicable in those situations where the debt collector is pursuing payment for more than one account.

And if you’re overwhelmed by debt and are seeking legal counsel or considering bankruptcy, you have the right to draft up a Cease and Desist Letter to halt all contact from the debt collection agency. You should send this document using certified mail and purchase a return receipt to ensure they receive it. At that point, the only further contact they can make is to notify you of their next intended course of action.

What Are Debt Collectors Prohibited From Doing Under the Fair Debt Collection Practices Act?

Debt collectors can’t just get fed up with you and call demanding that you pay up. They have to be respectful with their approach and refrain from threatening, harassing, or swearing at you. There are also some other actions that are prohibited from taking when attempting to collect a debt, including:

  • Attempting to collect on a debt without sending a validation notice in writing within five days of initiating contact with you.
  • Refusing to respond to your debt validation request but moving forward with collection efforts.
  • Demanding that you pay more than you actually owe. Some collection agencies tack on miscellaneous fees and penalties to the outstanding balance, but doing so is illegal under the FDCPA.
  • Contacting you before 8 am or after 9 pm. If they call you in the wee hours of the morning or late at night, they are in direct violation of the FDCPA.
  • Calling you on your job if calls from debt collectors are prohibited. That’s unless you give them permission to do so, and they must still only call within the allotted window of time as allowed by the federal law.
  • Sharing details about your debt with others, with the exception of your spouse or parents if you are a minor.
  • Using deceptive tactics, profanity or threatening you on the phone.
  • Ignoring Cease and Desist Letters that demand all contact be stopped right away. If they continue to call, send text messages, or email you, they are violating your rights. (As noted earlier, they can contact you one more time after receiving the letter to let you know what they plan to do next).
  • Reporting incorrect information regarding the debt to the credit bureaus. Debt collectors are required to report accurately and timely information.

How Do You Report Debt Collectors That Violate Your Rights?

Despite the potential negative consequences that collection agencies can face for violating the FDCPA, some are willing to test their luck.

You can use the following channels to report debt collectors that violate your rights:

  • The Consumer Financial Protection Bureau
  • The Federal Trade Commission
  • The State Attorney General’s office (in your state of residence)
  • The court of law (by filing a lawsuit)

Debt collection agencies found to be in violation of the FDCPA can face monetary fines. And should you decide to file a lawsuit in federal court and the judge rules in your favor, you could receive damages if the suit is filed within a one-year window of the original violation. But if you’re unable to prove that you incurred damages as a result of the violation, you could receive up to $1,000 in additional funds to reimburse you for applicable court cost and attorney fees.

The Bottom Line

By understanding the FDCPA, you’ll be better suited to deal with debt collectors and understand when your rights have been violated. But if you are uncertain, it doesn’t hurt to seek legal assistance to gain the clarity you need.

How to Deal with Collection Agencies

Are you worn down by the constant letters and calls from collection agencies? Maybe you’re drowning in debt, strapped for cash, and don’t which way to turn for help. Regardless of your situation, there are ways to find relief from those pesky debt collectors.

But it’s important to understand what types of collection agencies exist, their role in the debt collection process, and your rights when dealing with them.

The Role of Collection Agencies

In a nutshell, collection agencies are entities that work on behalf of creditors to collect amounts owed on delinquent accounts. There are two types of collection agencies to be aware of.

In-House Collection Departments

Before an account is turned over to a third-party debt collector, most companies will attempt to collect what is owed through their in-house collection department. Doing so gives them a better chance of recouping most or all of the outstanding balance. Furthermore, they won’t take a substantial loss by writing off the debt and selling it to an outside agency since they’ll only get pennies on the dollar.

In-house collection departments may be willing to negotiate a settlement agreement, but the chances are highly unlikely. Instead, you’ll usually find that they’re open to working out some sort of payment arrangement to help you pay back what you owe over time without spreading yourself too thin. They may also agree to refrain from reporting additional late payments on your credit report so you can preserve your credit rating.

Outside or Third-Party Debt Collection Agencies

If the account sits on the books for too long in an unpaid status, usually between 90 and 180 days, the company will write it off and sell to a third-party debt collection agency. At this point, the debt collector will reach out in writing with a notice that indicates you have 30 days to respond regarding the validity of the debt. If you don’t, it will be reported to the credit bureaus as a collection item and the collection texts, calls, and letters demanding payment will commence.

They may be willing to work with you to get the debt handled, but paying it in full won’t necessarily improve your credit score. In fact, the debt will still linger for seven years from the initial date the delinquency was reported, but they will update the account status to settled or paid in full. However, you may be able to negotiate a pay-for-deletion to make them remove the negative entry from your credit report and go away.

But if you ignore them altogether, they may sue you in the court of law to collect the amount owed. This could result in a judgment and more severe consequences, like wage garnishments.

What Do Debt Collection Agencies Do?

Ultimately, their goal is to get you to pay up, even if it’s for a portion of what you owe. But they can’t just go about collecting on the debt in any manner that they please. Instead, they must follow the rules outlined in the Fair Debt Collection Practices Act (FDCPA) or they could face harsh consequences.

Your Rights Under the Fair Debt Collection Practices Act

According to the Federal Trade Commission, it’s “illegal for debt collectors to use abusive, unfair, or deceptive practices when they collect debts.” And if they do so, the debt collector will be in direct violation of your rights under the FDCPA.

Below is a summary of your rights under the FDCPA:

  • Debt collectors cannot call you before 8 am or after 9 pm. However, they can reach out if you agree to be contacted outside of these hours.
  • Debt collectors cannot call you at your place of employment if you notify them that these types of calls are not permissible or that you do not wish to be contacted there.
  • Debt collectors cannot divulge the details of the debt to anyone outside of your spouse or parents (if you’re a minor).
  • Debt collectors are obligated to mail you a written validation notice detailing the applicable balance, creditor’s information, and how to handle the debt if it doesn’t belong to you. They have five days from the initial date of contact to do so or they are in violation of the law.
  • Debt collectors cannot use language that is abusive, make false threats, or harass you regarding the debt.
  • Debt collectors must stop contacting you if you send a letter requesting that they do so. It’s called a Cease and Desist Letter should be sent via certified mail with a return receipt so you’ll know when it’s in their possession. Upon receipt of the letter, the debt collection agency is permitted to reach out one more time notifying you of their next course of action. (Quick note: by sending out a Cease and Desist Letter, you may be putting yourself at an increased risk for a lawsuit since the debt collector will no longer be able to communicate directly with you to find a resolution).

Are Business Debts Covered Under the FDCPA

Unfortunately, business debts are not covered under the FDCPA. The rules only apply to revolving and installment personal debts, including credit cards, personal loans, auto loans, home loans, student loans, and mortgage loans.

What To Do If Your Rights Are Violated

If you feel as if a debt collection agency has violated your rights under the FDCPA, you can reach out to the Federal Trade Commission (FTC) or the Attorney General’s office in your state of residence. You can also file a formal complaint online using the tool offered by the Consumer Financial Protection Bureau.

You also have the option to file a lawsuit. And if you win, you could be awarded damages or fines of up to $1,000 in addition to any legal fees incurred. The latter includes court costs and expenses associated with hiring an attorney.

But keep in mind that even if one of these agencies rule in your favor, you’re still on the hook for the debt.

Debt Collection Scams

Not all collection agencies are created equal. In fact, some are scam artists looking to prey on consumers that are already in dire financial straits.

The first sign of a scam artist is one that is calling about a debt you have no knowledge of and are certain that you don’t owe or doesn’t exist. Other signs to be on the lookout for, per the FTC, are companies that do not have a mailing address or phone or request information that is highly sensitive. They may also be a scam artist if they threaten to turn you over to the local authorities.

If you’ve been contacted or have fallen victim to debt collection a scam, report the incident to the FTC right away. You should also call your state Attorney General’s office and request assistance regarding what your next course of action should be.

Best Practices When Dealing with Collection Agencies

Validate the debt first.

There’s no way to know if the debt collection agency is legally able to collect on the debt without validating it first. By sending a letter to the credit bureaus disputing the accuracy of the debt or communicating that you have no knowledge of it, you’ll force the debt collector to provide documentation showing that you actually owe and that they can legally collect on it. If they’re unable to do so, the collection efforts stop right there.

But if you recently received a written validation notice and still in the 30-day window, all collection activities must come to a halt until the debt collector sends over proof that you owe. This could be in the form of a bill from the creditor or a copy of the original contract.

Ask the collection agency to only communicate in writing.

Debt collection agencies can make one deal on the phone and act as if they have no idea what you’re referring to when it comes up later on down the line. That’s why it’s best to only communicate with debt collectors in writing.

Record all telephone correspondence.

If they do insist on calling, don’t answer right away. Instead, allow them to leave a message and only return the call once you’re able to record it via a handheld recorder or your mobile device. During the call, reiterate that you’d like to receive written correspondence. And if you reside in a state that requires you to disclose that conversation is being recorded, be sure to let them know.

Take detailed notes from phone conversations.

Request the name of the representative that you are speaking to and not the date and time. And simply listen to what they are saying. Refrain from divulging any information or it can be used against you later on in the court of law. As mentioned earlier, remind them that you’d prefer that they stop calling and forward all further communication to you in writing.

How to Remove Collection Accounts From Your Credit Report

Looking to remove collection accounts from your credit report? Follow the detailed instructions in our handy guide found right over here. (insert hyperlink to other article) Another option is to hire a reputable credit repair company to do the legwork for you.

The Bottom Line

By knowing how to deal with collection agencies, you’ll be able to alleviate the stress that comes with the letters, calls, and texts demanding payment. And if all else fails, you can always send a Cease and Desist Letter and hire an attorney to take it from there.

How to Handle Medical Debt

One minute you’re healthy and the next minute you’re burdened with medical bills. It happens more often than you may think, and it doesn’t take a debilitating illness to get to this point. In fact, if you head to the emergency room and they take a slew of labs or require an overnight stay to diagnose your issue, you could easily rack up thousands in medical bills. And if you’re uninsured, that only adds to the bill.

The good news is there are several ways to handle medical debt without emptying your bank account or pulling your hair out. Keep reading to learn more.

Review your bill in its entirety.

Before you give the medical provider a dime towards the bill, review it from top to bottom. Confirm that the line items accurately reflect the treatment you received and that there aren’t any inconsistencies if pricing. If you spot issues, notify the billing office right away to have them resolved.

Compare your bill to the explanation of benefits.

Assuming you’re insured, the next step is to compare your bill to the explanation of benefits sent out by your insurance company. (Didn’t have insurance coverage at the time of the visit? You can skip this step).

If you haven’t yet received this document, reach out and request that it be sent promptly. You may also be able to login to your insurance provider’s online portal and view an electronic copy there.

When comparing the two, you want to make sure that the insurance company took care of the portion of the expenses that they were supposed to, as outlined in your policy. It’s not unusual for billing and coding errors to happen, so you may find that the insurance company only covered 70 percent of a service when they were supposed to cover 80 percent. Or maybe they assessed the full amount for a particular procedure when it was supposed to be covered at 100 percent because it was coded incorrectly by the medical provider’s billing office.

Either way, it won’t take a ton of effort to reach out to both the insurance company and medical provider to have the bill updated so it can be processed correctly. And you’ll often find that by taking just a few minutes of your time, you can save hundreds if not thousands in medical costs.

Request a payment plan.

Medical providers are aware that most consumers don’t have thousands of dollars lying around waiting to be spent on healthcare expenses. For this reason, they offer payment plans designed to fit every budget.

Oftentimes, they are not accompanied by interest and allow you to make a monthly payment that is comfortable and doesn’t stretch finances to thin. Another added benefit of payment plans is the ability to protect your credit rating and avoid debt collectors as the medical provider will know you’re committed to doing your part to handle your outstanding debt.

But you have to be willing to call in and set up a payment plan to get the ball rolling. And when you do so, be sure to only commit to an amount you can afford to pay each month or you run the risk of the account being turned over to collections.

Negotiate a discounted settlement.

Have you tried calling the medical provider’s billing office to inquire about discounts or settlement options? You may be able to have your medical debt balance steeply reduced or off the strength of a financial hardship. This is also common if you were uninsured at the time services were rendered.

And in more extreme cases, you may qualify to have the debt written-off completely if you’re in dire financial straits. But you may have to provide financial documentation and meet with an in-house representative to review your situation and determine if this option is available to you.

Explore financial hardship programs.

Still no luck? You can also try exploring federal or nonprofit programs and organizations that may be able to assist. Most of these programs are income-based, and your local health department or hospital may have information on hand to point you in the right direction.

Also, visit Benefits.gov and use their comprehensive search tool to find health and medical assistance programs that you may qualify for. Results can be filtered by state and subcategory.

Hire a medical bill advocate to negotiate on your behalf.

Prefer to let a third-party to the legwork for you? Consider hiring a medical bill advocate to negotiate the balances and work out the details with your medical providers. They will also analyze all of your bills to determine if there are issues with the coding, if you haven’t been assessed the proper rates for services, or if the insurance provider should cover a higher portion of the expenses.

This option is ideal if you’re medical expenses are steep as a result of a serious medical condition or long-term stay in the hospital.

If you’d like to explore this option, you can ask around for recommendations or contact the Medical Billing Advocates of America to learn more. But keep in mind that medical bill advocates typically charge a fee for their services.

Borrow the funds.

As a last resort, you can apply for a personal loan or use a credit card to pay back what you owe. You can also apply for a medical credit card, like CareCredit, to help alleviate the financial burden and stop the collection calls.

But before you go this route, be sure to conduct a cost-benefit analysis to make sure it’s worthwhile. If you’re able to find a loan with a low-interest rate and affordable payments or a credit card that offers an extended zero-interest promotional period, it may not be such a bad idea. However, a higher interest loan or credit card that starts accruing interest right away could land you into a mountain of debt and even more financial trouble.

How to Deal with Medical Debt Collectors

What if the debt is already in collections and none of these options are available to you? There are still ways to resolve your medical debts.

For starters, you should know that the three credit bureaus – Equifax, Experian, and TransUnion – have to wait at least 180 days before they can place outstanding medical debt on your credit profile. So, this gives you an ample amount of time to work towards reaching a resolution.

But if you’ve already passed this point, here are some additional suggestions:

Dispute the debt.

Collection agencies buy debt for pennies on the dollar, so it’s not uncommon for the balances to get passed from one company to another and documentation sometimes slips through the cracks. This could be good news for you as the burden of proof is on the debt collector to prove that you actually owe the debt should you decide to file a dispute.

So, you can take your chances by filing a formal dispute with each of the credit bureaus. And if the collection agency is unable to provide ample documentation or doesn’t bother to respond because they don’t feel it’s worthwhile, the debt will be removed from your credit report and you’ll be off the hook for the balance. (Quick note: if they decide to sell the debt to someone else, you’ll have to restart the process all over again).

Negotiate a pay-for-deletion agreement.

If the debt collector is able to provide proof that you owe, you can try negotiating a pay for deletion. In essence, you’re requesting that they accept a portion of the balance owed to settle the debt. It also means that they will remove it from your credit report and stop pursuing you.

It may take some time to get the debt collector on board. But when they do bite the bait, be sure to get the agreement in writing and uphold your end of the bargain.

The Bottom Line

Dealing with medical debt can be stressful and downright overwhelming. But by taking the time to address the issue and either working to find a solution or hiring someone to do it for you, you’ll find the relief you’re seeking sooner than later.

Debt Settlement 101: A Comprehensive Guide

Debt settlement entails paying creditors less than you owe to cover your outstanding debts. In exchange, you’ll be off the hook with debt collectors. Even better, they will release you from all liability and won’t be able to file a lawsuit against you in the court of law.

It can offer a peace of mind if you’re buried in debt and can’t seem to find a way out because your finances are in shambles. But it takes some time to legwork to pull it off whether you hire a debt settlement company or take the DIY route. And there are some negative implications you should consider.

Read on to learn more.

Potential Benefits of Debt Settlement

You’ll have peace of mind.

No more ducking and dodging debt collectors or tossing and turning at night worrying about your debt. By settling your debt, you’ll be able to put your dark financial past behind you, move on with your life, and focus on fresh financial goals.

You’ll reduce the financial blow to your wallet.

Assuming your attempt at debt settlement is successful, you’ll save a wad of cash by only paying a portion of what you owe to the creditor. This will free up funds to work on accomplishing other key financial objectives on your list, like building an emergency fund or contributing to your retirement account.

Risk Factors

There’s a 50:50 chance it won’t work out.

Creditors aren’t obligated to accept your debt settlement offer. In fact, they can do the opposite and choose to pursue you in the court of law, especially if they sense that you have the wherewithal to pay.

And there’s also a chance that the creditor is willing to settle, but for an amount that’s too high or doesn’t quite work for you. Either way, you’ll have to deal with damage to your credit profile and find a way to take care of your outstanding debts, plus additional interest, fees, and penalties incurred from withholding payment.

Does Debt Settlement Impact Your Credit Rating?

While debt settlement does negatively impact your credit score, the damage starts far before an agreement is reached (if at all). How so? Well, debt settlement companies advise consumers to cease payments on their outstanding debt obligations during the process and divert the funds to a savings account, instead. When the account reaches a certain amount, they will commence negotiations on your behalf. And if an agreement is reached, the funds from this account will be used to settle the debt.

This is done for a few reasons. For starters, most creditors will only agree to the terms and conditions of a settlement offer if the amount can be paid in full. So if you don’t have the funds available and they say yes, you’ll be out of luck. Furthermore, creditors are less likely to accept a settlement offer if they suspect you’re able to repay what you owe. And by continuing to make monthly payments, you’ll lower your chances of them biting the bait.

The problem is that by forgoing monthly payments in an effort to save up, your credit rating will take a hit once the payment is late by 30 days or more. And depending on how severe the delinquency gets, the account could be written off by the creditor and converted to a collection item.

But what if you reach a settlement before the account is written off as a collection item? The creditor will note that it has been settled for less than the total amount owed and the entry on your credit report will still ding your credit rating.

Other Important Considerations

Costs

When you hire a debt settlement company to negotiate a reduced payoff on your behalf, you may not incur any out of pocket costs right away. On the other hand, they may assess an administrative fee that is withdrawn monthly from the savings account that contains the funds that will be used to pay off the debt.

And when they do reach a settlement that works for both parties, they will usually deduct a percentage of the settlement amount or the total amount eliminated by the settlement.

To illustrate, assume you initially owed $16,000 and the debt settlement company you hired negotiated a settlement for $7,500.

  • If the company charges 20 percent of the settlement amount, you’ll pay $1,500 ($7,500 * 20%) in fees and $7,500 to the creditor.
  • If the company charges 20 percent of the total amount eliminated by the settlement, you’ll pay $1,700 ($8,500 * 20%) in fees and $7,500 to the creditor.

Tax Implications

The creditor may appear to be generous by accepting your offer, but Uncle Sam isn’t always as forgiving. In fact, you may be on the hook for additional income tax with the Internal Revenue Service (IRS) because the amount that’s forgiven may be classified as taxable income. If you’re unsure of if you fall into this category, it’s best to solicit guidance from a reputable tax professional.

How to Find a Debt Settlement Company

Are you ready to bring a debt settlement company on board to go to work on your behalf? Don’t settle for the first company you find on the internet. Here are some key factors to look for along with some of the top options in the debt settlement industry.

Evaluating your options

When shopping around for debt settlement companies, you want to consider companies that:

  • Are licensed in your state of residence, which can be confirmed by contacting the Attorney General’s office in your state.
  • Are accredited by the Better Business Bureau (BBB). An A+ or A rating is also ideal.
  • Are affiliated with professional organizations in the industry.
  • Offer free consultations so you can gauge which companies are best suited to fit your needs.
  • Only assess fees once they’ve negotiated and executed a settlement on your behalf. (Note: some companies charge setup and administrative fees over the course of your time as a client).
  • Have minimal complaints on file with the BBB, State Attorney General, or the consumer protection agency in your local area of residence.

Don’t know where to start? Key industry players, like Freedom Debt Relief and National Debt Relief, can analyze your situation and get you moving in the right direction. You can view our comprehensive list of top debt settlement companies here (insert hyperlink once the article is published).

DIY Debt Settlement

Do you think you have what it takes to settle your own debts without bringing a company on board? It’s worth a shot if your debts are already severely past due, around 90 days or more, and you the funds at your disposal to make a lump-sum payment.

By settling your own debts, you’ll always save money as you won’t be required to pay a fee to a service provider to set up an account or once a settlement is reached.

Ready to get started? Take the following steps:

  • Step 1: Assess your finances to determine if you have the funds on hand to make a lump-sum payment. Oftentimes, the creditor will request that you settle the debt at once at not over time with multiple payments. And if you reach a deal but are unable to follow-through, they may be reluctant to work with you again on reaching a deal.
  • Step 2: Draft up your game plan. While you could just call up the creditor and ask to pay less than what you owe with no specific reasoning, you may find it harder for them to accept your offer. A better idea: compose a pitch that explains your financial hardships and point to the fact that you’ve already missed a few payments. That way, they’ll know that the chances of you paying off the balance in full are slim to none. Also, decide on the starting point of your negotiations. You want to give yourself wiggle room just in case they reject the first few offers. So, if you can comfortably by 60 percent, start at 30 percent and work your way up.
  • Step 3: Contact the creditor once you have the funds in hand and are ready to negotiate a settlement amount. There’s a high possibility that you may not be successful the first or even second time around, but the key is persistence. It may also be necessary to move up the management ladder to get the results you’re looking for.
  • Step 4: Seal the deal. Before you hand over your hard earned cash, be sure to get the final agreement in writing from the creditor. That way, you’ll be covered and can rest assured that the creditor is playing by the rules. But keep in mind that the creditor will also expect you to uphold your end of the deal.

The Bottom Line

Whether you decide to hire a debt settlement company or work out deals with creditors on your own, you may be able to find the relief you’ve been searching for. But before deciding on a course of action, be sure to explore all your options to decide if debt settlement is the best fit for your financial situation.

How to Get Out of Debt

You started using debt as a means to build your credit and the plan backfired. Simply put, you want to get out of debt and don’t know how.

Even worse, you have more debt payments that you can comfortably afford and your balances have skyrocketed. And that credit score you worked so hard to build is not so useful after all because you can barely make ends meet.

Debt is relatively easy to get into to but can seem practically impossible to get out of. As the balances rise and interest accrue on those credit cards, the burden becomes more and more strenuous. And if you couple that with all the other installment debt you have on your plate, you can find yourself struggling to pay back what you owe.

The good news is debt is not the end of the world. And by taking the proper steps, you can start knocking down those balances and ultimately get out of debt once and for all.

How to Demolish Debt

Before you get started with the process, you have to ask yourself if you’re willing to do what it takes to get out of debt. While it sounds good to tell yourself that there’s a light at the end of the debt tunnel, your actions are ultimately what will determine your fate.

Simply put, demolishing debt isn’t necessarily a walk in the park and there will be times when you want to give up but you have to be committed to the cause and remember why you started.

And in case you’re wondering if it’s even worthwhile to get out of debt, think about your financial future. Every dollar wasted today will have serious implications for your finances later on down the line. So, if you reach retirement age and are still buried in debt, chances are you’ll have to scale back your lifestyle drastically to stay afloat.

You should also consider the impact a heavy debt load has on your retirement. If you continue to settle for making minimum payments and not getting aggressive with your installment debts, the amount you’ll be able to contribute to your nest egg could be substantially lower. And this prevents you from taking total advantage of the power of compounding interest.

With that being said, are you up for the challenge? If so, read on for a list of steps to take to get started:

Step 1: Take a snapshot of your debt

Do you know what you owe? Before you can get out of debt, you need to take a snapshot to see where you stand. You’ll want to grab a notebook or open a spreadsheet and note the following about each debt you owe:

  • Creditor’s name and contact information
  • Type of debt; revolving (credit card) or installment (loans)
  • Current Balance
  • Credit line (if applicable)
  • Minimum payment
  • Due date
  • Interest rate
  • Status (current or delinquent; if the latter applies, note the past due balance)

Step 2: Create a debt-payoff fund

The next step is to create a debt-payoff fund to start placing a dent in those balances. You’ll continue to make minimum payments on all your debts, but use the money from this fund to execute your debt-payoff strategy.

Wondering where the money will come from? Oftentimes, it’s as easy as taking a long and hard look at your budget and cutting out those variable expenses, or wants, to free up funds. You may also want to consider finding a side gig, taking on a part-time job, working overtime, or using your creative talents to bring in extra money. Financial windfalls are another great way to boost your debt-payoff fund.

Quick note: if you are delinquent on any of your debts, be sure to get caught up before you begin allocating extra funds on other accounts. Try reaching out to your creditor to determine if they have a financial hardship program to help you get back on track. Or look to your budget and make some serious sacrifices to make this happen.

Otherwise, you’ll continue to damage your credit rating and could be hit with a charge-off or repossession, which will severely impact your credit and could have harsh legal consequences for years to come.

Step 3: Select a debt-payoff strategy

It’s difficult to reach the finish line if you have no idea how you’ll get there. But now that you’ve figured out how much money you’ll have at your disposal every month to accelerate debt-repayment, it’s time to select a debt-payoff strategy and execute your plan.

Most consumers start with credit card debts since they are usually the most draining to their wallet. The two most common strategies for dealing with credit card debt are the:

  • Debt snowball method: Make the minimum payment on all your outstanding debts, but allocate any extra funds to the credit card with the lowest balance.
  • Debt avalanche method: Make the minimum payment on all your outstanding debts, but allocate any extra funds to the credit card with the highest balance or that’s costing you the most (in interest).

If you don’t have any credit cards but are looking to find relief from installment debt, the debt snowball, and debt avalanche can surely assist. But if you’re the situation is out of hand and you need more options or rapid relief, keep reading.

Explore Debt Relief Options

What do you do if you can’t afford debt payments and are considering bankruptcy? Is there any hope for your situation? Fortunately, there is, and the options may provide you with the relief you need in a jiffy without pounding away at debt payments for months on end.

Debt Consolidation

You can streamline the debt repayment process by rolling all of your smaller debts into a single loan. This may be a viable option to pay off debt faster if the new loan product has more favorable terms because you’ll pay substantially less in interest. Furthermore, your monthly payment may be lower, which means you’ll be able to pay over and above that amount to reach the finish line faster.

To consolidate your debt, it will be necessary to take out a debt consolidation or home equity loan. The next step is to pay off all your outstanding debts using the proceeds and make a single monthly payment to the new creditor until the balance is paid in full.

Another option is to open a balance transfer credit card. They are accompanied by a promotional period where APR is not assessed. To derive the greatest benefit, you’ll need to transfer all your outstanding balances to this card and pay it in full before the promotional period ends. But you must also refrain from using the cards you’ve paid off or your plan will backfire.

Debt Settlement

If you’re in dire financial straits and debt consolidation doesn’t seem like a good fit, you have the option to explore debt settlement. It may have serious implications for your credit, but you may be able to get out of the debt hole faster.

In essence, you’re communicating to the creditor that you’re willing to pay an amount (usually substantially less than you owe) in exchange for relief. This means that they can’t file a lawsuit against you later on the down the line. However, they can report the debt to the credit bureaus as settled, which negatively impacts your credit report.

When you begin working with a debt settlement company, you’ll more than likely be told to stop making monthly payments to demonstrate to creditors that you are unable to keep up with your debt obligations. But you will be making payments to a savings account that the debt settlement company will use when negotiations commence.

You should also know that debt settlement only works for unsecured debt products, like personal loans not backed by collateral (with the exception of student loans) and unsecured credit cards.

Consumer Credit Counseling

Unsure of which path is best for you when dealing with a large debt loan? Speak with a consumer credit counselor to help you navigate the murky waters and devise a plan that best suits your needs. They are employed by nonprofit agencies and offer their services free of charge, so you won’t have to spend even more of your hard earned money to find a solution. l

An Important Tip

Are there any debts on your credit report that are untimely, inaccurate, or questionable? You have the right to validate the debts by sending letters to the credit bureaus requesting that they are verified. This forces the creditor to respond with proof that the debt is accurate, update the details in your credit report, or delete the debt from your file. But if they don’t respond within the allotted 30-day window, the debt will be removed from your credit report and they may be legally unable to collect from you.

How to Deal with Debt Collectors

Until you break free from debt bondage, you may find that the debt collectors to be an extreme nuisance, particularly if you have quite a few past-due debts. But you have rights, and the debt collectors must adhere to the federal law or could face consequences.

Debt collectors are prohibited from:

  • Contacting you before 8 am and after 9 pm
  • Contacting you at work if you request that they stop because your employer doesn’t approve
  • Harassing you during phone calls
  • Reaching out to you once a Cease and Desist Letter has been issued. (Note that they can follow-up one additional time with their intended next course of action).

If you determine your rights have been violated by a debt collector, file a formal complaint with the Consumer Financial Protection Bureau, the Federal Trade Commission, or the attorney general’s office in your state.

The Bottom Line

Paying off your debt can be a marathon, not a sprint. But what matters most is that you’re making progress towards your goals. And by assessing your situation and doing a cost-benefit analysis of all your options, you’ll be in the best position to get out of debt once and for all.

Debt Validation

Are debt collectors chasing you down about a delinquent account? While you may be inclined to just pay them what they owe to make the constant calls and letters stop, there’s a better option: debt validation.

Read on to learn more about why you should validate your debts before paying up, and how to do so using a debt validation letter.

What Is Debt Validation?

Per the Fair Debt Collection Practices Act (FDCPA), the burden of proof is on the debt collector to prove that you actually owe what they say you do. This means that they must have documentation on hand that confirms that they not only are legally obligated to collect on the debt, but it actually belongs to you and is within the statute of limitations for collection.

Otherwise, they cannot legally report the information to the credit bureaus for inclusion in your report. Furthermore, their collection efforts must come to a halt. And if the debt is already being reported, it must be removed promptly.

But how do you go about validating your debt? It starts by sending a letter to the collection agency, which halts the phone calls, texts, and possibly reporting (depending on when the letter is sent).

Why Should You Validate Your Debt?

If you have the funds to pay off the collection account, shouldn’t you just pay what the debt collectors say you owe and move on? Not necessarily.

For starters, if the debt doesn’t belong to you, there’s no need to pay it as the responsibility to cover someone else’s financial burden should not fall on you. And while it may be easier to just pay the debt, especially if it’s for a small amount, the FDCPA protects you from having to pay for debts that don’t belong to you.

Furthermore, you want to make sure that you’re not paying more than what’s actually owed. Debt collectors can be sneaky and inflate outstanding balances or tack on miscellaneous fees without having the legal right to do so. But by validating the debt, they’ll be forced to adjust your bill if there are errors to reflect the accurate balance.

Most importantly, debt validation either confirms or denies that you actually owe that particular collection agency because the account is now in their hands. In other words, anyone can pick up the phone or send a letter to you demanding that you pay off a particular account. But are they really the company that was designated by the original creditor to do so? Or did they actually acquire the debt from the original creditor or are they just a fraudster pretending to be someone they aren’t? If you do happen to encounter a con artist and you pay off the debt without validating it first, you’ll still be on the hook and they will be long gone with your hard earned money.

How to Validate Your Debt

When the collection efforts initially commenced, you should have received a notice in the mail from the debt collector within the first five days of initial contact. This notice should have included key details about the debt and communicated that the debt collector has legal rights to collect on the debt. It should have also contained verbiage stating that you have 30 days to dispute the validity of the debt before they take further action, including reporting it to the credit bureaus.

But what if the letter didn’t come in the mail? You still have a right to send a letter requesting that the collection agency validate the debt.

Draft up a debt validation letter.

Your debt validation letter should include:

  • Your full name and address
  • The date and time the collection agency initially reached out to you
  • A statement requesting that they provide proof that you owe

View this handy template to help you get started.

Send the letter to the collection agency.

Once you’ve written your debt validation letter, it should be sent to the collection agency attempting to collect on the debt. Be sure to only forward over a copy of the letter and retain the original for your records. Also, send the letter via Certified Mail with a Return Receipt so you can know when it arrives at the debt collector’s physical location.

Await a response.

As mentioned earlier, collection efforts will come to a halt when the letter is received until they send you the proof you’re requesting. And don’t be surprised if the debt collector decides to take a step back and forward the account back over to the original creditor. This could happen if they don’t have the proof they need to legally collect on the debt.

But what if the debt collector never responds? Follow-up sending another letter requesting a response and re-iterating your rights under the FDCPA. In the package, be sure to include a copy of the original letter you sent over and a copy of the return receipt so they can know that you’re aware they received it.

Still no response? Notify the credit bureaus in writing that the collection agency has failed to respond to your validation requests so the entries can be removed from your credit report. Be sure to include any supporting documentation in the package you send over.

You can also file formal disputes with the credit bureaus. This will prompt them to reach out to the information provider (whether it be the original creditor or debt collector) to investigate your claim. If they fail to respond to the credit bureaus within the allotted 30-day window, the item must be removed from your credit report.

How to Move Forward If You Owe the Debt

You’ve taken all the necessary steps to validate the debt and the collection agency has provided proof that the debt is indeed yours and they have the right to collect on it. What’s next? Well, you have a few options:

  • Ignore the debt. This is a common approach if the statute of limitations is almost up or you simply don’t have the funds to remit payment at the moment and would rather face the risk of being sued than paying up.
  • Request a payment arrangement. Most debt collectors will work with you if you would like to break up what you owe into smaller chunks. Remember, chances are they only paid pennies on the dollar for the right to collect, so some income is better than none on their behalf.
  • Request a settlement. If you have a lump-sum of cash on hand, the debt collector may agree to settle the debt for a fraction of what you owe. Just be sure to get this in writing so you can avoid being sued later on down the line.
  • Negotiate a pay-for-deletion. Under this arrangement, the collection agency will remove the negative mark from your credit report in exchange for payment. This agreement should also be executed in writing so you’ll have proof in case the debt collector doesn’t uphold their end of the bargain.

The Bottom Line

Debt validation is one of the more effective tools in your arsenal of consumer protections under the FDCPA when dealing with debt collectors. And by taking the time out to draft up letters and do your due diligence, you could save yourself time, money, and headaches when dealing with delinquent debts that may or may not belong to you.