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You could reduce the amount you owe
The only good news if you're being hassled by a debt collector is that you can negotiate a debt collection settlement. This means that you would not pay the total amount you owe but instead you might pay 50% or even less. Your credit reports would list this as negative information but it will show that at least you paid much on your debt as you could. Your credit report will no longer show your debt as “outstanding” but as "settled," "settlement" or "settled for less than full balance” -- depending on the individual credit bureau.
The first step before you contact that debt collection agency is to figure out how much you can afford to pay. This means you should carefully review your budget. The goal here is not to offer or to settle for more than what you can afford. Of course, when you contact the debt collection agency you will want to offer less than this amount. And when you begin negotiations, make sure that you don’t provide any information about your bank account, references or anything about your employment.
If you are able to negotiate a settlement, the next step is to request that the debt collector removes all information from your credit reports related to the fact that the debt was settled. While the collection agency cannot remove any negative information that was added to your credit file before it received the debt, it can remove any information that the collection agency added to your report after it got the debt. Then go online and review your credit reports to make sure that the collector did remove the negative information. If you're not familiar with the three credit reporting bureaus they are TransUnion, Experian and Equifax.
This will probably be your final step. It will be to get a written agreement before you pay the collector anything. In fact, you might want to hire an attorney that does consumer law to check out the settlement agreement that you've reached. In either event, the agreement should include what you have said you would pay, whether you will pay it over time or in a single sum, and when the payments or the lump sum payment is due. It should also include whether you will make the payment via a cashier’s check or electronic funds transfer. Do not give the collector your personal check as this will give him or her all the information needed to sue you and take money out of your account.
Your settlement agreement should also include any debt concessions that have been made by the collection agency and any conditions that would violate the agreement and what would be the consequences if a violation were to occur. Don't sign it until it contains everything to which you agreed and you fully understand the document. Make a copy of the agreement yourself after you sign it and put it away somewhere safe.
Here's a brief video courtesy of National Debt Relief that underscores the things that are important when negotiating with a debt collector.
If the collector refuses to negotiate
In the event that the debt collector won’t negotiate, your best option would be to contact the initial creditor that sent your debt to the collector. Maybe that creditor would be willing to compromise with you. You could also suggest to the debt collector that if he or she refuses to settle you will be forced to file for bankruptcy. This could motivate the collector to negotiate with you and settle your debt for less than you owe.
If you don't feel you'd be a good negotiator
If you don't feel that you would be good at negotiating with a debt collector, your only recourse will be to hire a consumer law attorney to do this for you. Of course, this may not be worthwhile unless it's a very big debt.
Hire a debt settlement company
If you’ve been unable to make payments on multiple debts – whether they've gone to collection are not – your best option could be to hire a debt settlement company. Companies such as National Debt Relief have counselors who are experienced at debt negotiation, have good working relationships with lenders and can almost always negotiate better settlements that you could do yourself. Plus, they know how to handle debt collectors. When you work with a debt settlement company this will stop phone calls from your lenders and any harassing phone calls from debt collectors. You will be required to send the money to the debt settlement company each month that you would've paid your creditors. The company should deposit this money into an escrow account that you control. When it successfully settles a debt it will request that you release the money to pay for it. If you’re typical there won't be enough money in your escrow account to pay for all your settlements. When this is the case, the debt settlement company will offer you a payment plan. Assuming you accept the plan it will take you anywhere from 24 to 48 months to complete it. But just think. You will be totally debt free. And how good would that feel?
How debt settlement companies charge
The one thing an honest debt settlement company won’t ever do is force you to pay any up front fees. Instead, it will either charge you a flat fee for its services or take a percentage of the money it saves you. In either event, you will pay less than if you were to pay off the debt. In most cases a debt settlement company will be able to settle your debts for 50% of what you owe. Even after it's assessed its fee you will end up paying less than the total amount of your debts.
Before you sign up with one of these companies be sure to do the math so you will know exactly what it will cost you. And again, get everything in writing and make sure you understand any documents you are required to sign.