An old debt is likely to be in the collection and this can damage your credit scores leave alone constant calls from collectors. Paying your old debts is one of the best decisions you can make when you want to rebuild your credit scores and regain your control over your finances.
If you are keen, it is possible to get a deal and pay a lower amount considering the fact thatcollectors buy old debts at a lower amount than owed. Nevertheless, paying off a debt is not synonymous with a settlement. If a debt is reported as settled in your credit report, it might lead to lower credit scores as opposed to when you’ve paid in full.
Create a list of all your old debts
To make sure you don’t miss anything, it is important that you create a list of all the old debts and an easy way to get an accurate list is by getting your credit report. Write down the exact amounts you owe for every debt as well as the creditors.
At times, you may find that your original creditor has turned over the debt to collection agencies and if this is the case, you will have to deal with the respective collection agencies. Before you think of paying the debts, make sure you are dealing with the rightful owner of the debt.
Come up with a realistic payment plan
A good payment plan will enable you to create a schedule that is in tune with your budget. By taking a look at your finances, you can figure out the exact amounts you can comfortably pay each month. Only then can you reach out to the creditor and inform them about your payment plan. If they are comfortable with the plan you have proposed, they will reply with a document confirming the deal.
Before you submit the payments, always make sure you are in agreement with the creditor especially when it comes to the terms. If the plan is well laid out, you can have an easier time clearing the debt and heal your credit profile.
The good thing about repayment plans is that you can choose to go with what suits your current financial capacity. However, be careful when deciding the amounts because you can bust your budget or even jeopardize the repayment plan if it’s unrealistic.
Take advantage of debt settlement
If you successfully negotiate to submit a payment that is significantly lower than your outstanding emergency loanscan be a good deal. While there are debt settlement companies who offer this service at a fee, there is nothing stopping you to travel the path on your own.
However, you need to know that there are real risks involved with this method. In the debt collection industry, it is normal for a collector to say that it is alright if you make a partial payment and the remainder will be forgiven. You will be surprised later when they turn the remainder to another agency for collection. If this happens, you can end up in an ugly cycle of debt.
At the same time, if the amount that has been forgiven is more than $600 it’s likely that you will be required by the law to file tax returns since it is taxable. Debt settlement negotiations call for patience and caution since your creditor needs to be convinced you don’t have the means to repay. If the amount has been outstanding for a long time, chances of getting the proposal accepted are quite high. However, it is prudent to ensure that all terms are clear and satisfactory. After the collector agrees, let them confirm the deal in an official document capturing all the terms before you can give them your money.
While this method seems to be faster than having to work through a payment plan, it can be hard to get a real deal. Besides, it can haunt your credit profile for a long time.
Pay the entire debt in a single payment
If your finances are not in a bad shape, making lump sum payments is the best way to bury collection complications. But before jumping into this method, take a closer look at your current finances to ensure it is the right decision. Most importantly, consider the benefits of clearing this debt and the consequences of spending money that may have been allocated to other expenses.
Paying the full amount will ensure you are no longer burdened by the debts but don’t pay before the collector issues an agreement stating that you no longer owe them money. This is your fallback strategy if the collector tries to play foul and forward the debt to another collector or when the payment is not reflected on the credit profile.
Old debts and your credit profile
Your payment history has a significant influence on your credit scores. Missed payments and late payments alike will taint your profile but if you haven’t paid for a long time, the creditor may choose to charge off the account and this lowers the score.
Normally, the blemishes can be present on your report for about seven years and this implies you have limited credit options. Eliminating old debts can cause a slight improvement to your credit score but it will only happen when the collector reports the payments.
Paying your debts is the ultimate way of ensuring you are not trailed by collectors every now and then. If you have a difficulty dealing with your debts, you may want to consider credit counseling or even file for bankruptcy. However, as soon as you have all your debts settled the best thing you can do is work towards developing sound financial habits.