How can I deal with collectors if I can’t pay?

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Q. I have outstanding debts with my old credit union. After a period of financial and housing hardship my checking and credit line with them became delinquent. I started to work with them on a repayment plan but I couldn’t come up with the full amount in a timely manner and now my accounts were sent to a collections agency. My first attempt at communicating with them to ask about a repayment scenario was met with “call us when you have money.” I am prepared to pay off one account, but the other is too much for a lump sum and I can only afford small monthly payments. I can’t qualify for a personal loan right now. I just want to improve my credit so I can rent a home for my family and eventually buy one. I’m not sure what the best course of action is in this situation.

Dear Reader,
Dealing with collection agencies can be an unpleasant experience. Especially when you are trying to strike a deal with them, and they are not cooperating. However, you still have options to work something out. Before you continue communications with your collectors, you need to be sure those debts are yours and that they are still within the statute of limitations. The statute of limitations is the legal timeframe collectors have to sue you to collect payment. Once the debt is beyond this period, usually between three to ten years, the collector cannot take any legal action against you. Talk to a lawyer to determine what your state’s statute of limitations is because it varies in each state.

Your options to deal with collectors depend on whether your debt is time-barred. If your debt is still valid, one common option is negotiating a payment agreement or debt settlement. Collectors are trained to get as much money as possible and may pressure you to get a deal that may not be sustainable for you. So, it may take several calls to get one that works for you. Be smart and patient. Plan to call them toward the end of the month because most of them have quotas to meet, and they will be more willing to strike a deal with you.

If you don’t have enough income to commit to a payment plan, your best option is to settle the debt for less than you owe. You’ll have the upper hand in the negotiations if you offer them a lump sum payment. Once you get an agreement, get it in writing before issuing a payment. And when you are ready to pay, never give them access to your bank account. They may take more than agreed, and it would be nearly impossible to get it back. Instead, pay with a cashier check or a prepaid debit card. If you have enough to pay one of these debts in a lump sum, I would recommend reaching out again to the collector to negotiate a settlement while you start saving to pay off the second one. This type of negotiation is something you can do on your own for free, so it’s worth considering as an alternative to fee-based services that offer to do this on your behalf. Those can be costly and are not always effective.

Another option is to do nothing. It’s risky, but if you don’t have enough income after paying for your living expenses, there’s not much you can do. You can reduce your budget to a bare minimum or even trying to get a second job, but if it’s not possible, you can only wait and see what steps the collector takes. If the calls bother you, you can send them a cease and desist letter to make them stop. Collectors would only be legally allowed to reach out to notify you if they are pursuing legal action against you. There’s always a possibility that the creditor may sue to try to collect payment from you. In that case, make sure don’t ignore any notices that you get in the mail and notify an attorney if you need help. Even then, you may still have options to deal with them.

Yet another option is to declare bankruptcy. Collections are typically discharged with bankruptcy, along with other unsecured debts you have. One advantage of filing for bankruptcy is your ability to protect your assets like a home or a car. But, it can be expensive and impact your credit negatively for up to ten years. But, it may not be the right choice for you. An attorney can also help you determine if this right for you.

Whichever strategy you pursue, it’s important that you understand each choice’s pros and cons. If you feel you need additional support to deal with your collectors and to find the right option for you, reach out to an NFCC-Credit Counselor to get a personalized strategy. They can help you pay off your debts and to plan for a secure financial. Good luck!