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If you are wondering what to do with crushing debt, you are not alone. According to the Consumer Financial Protection Bureau (CFPB), in 2018, roughly 28 percent of consumers with a credit file at a nationwide consumer reporting agency had a debt reported by a third-party debt collector, and nine percent had at least one 60-day delinquency on a credit card.

There are millions in your situation, but ignoring that you owe a creditor is not a good solution. The company you owe has lawful ways of trying to collect the debt. You have lawful ways you can respond. Let’s look at the timeline of what will most likely happen and your potential options.

You Ignore Bills

If you ignore your bills for a month or several months, the creditor (the company you owe money to) will report you to the credit bureaus (the companies that tell everyone your credit score) and your credit reputation score will drop. A good credit rating is important if you hope to get a car loan or a mortgage in the next several years.

If you are 25 now, you may have trouble renting a new apartment 3 years from now as they check your credit and see that you are unreliable. If you are 30 and want to buy a house in 6 years, you will most likely be turned down by lenders. It will be difficult or impossible to obtain credit cards, car loans, student loans or mortgages. You will also pay security deposits of hundreds of dollars if you open a new utilities account.

Even if you are able to obtain credit cards, car loans, or mortgages, your interest rate will be considerably higher and you will pay thousands more over the life of your loan than someone with good credit.

Debt Collectors and Collecting Agencies

When you first incur a debt, the creditor is the original company that you owe money to. After a time of not paying your bill, many companies will sell your debt to a collection agency/ debt collector. Sometimes, a large company will have a collections department within their company that will contact you.

You can negotiate directly with creditors to pay down your debt. A creditor will often let you set up a payment plan to pay off the full amount you owe over time. Negotiating and working out how you will pay a debt in full over time does NOT affect your credit score.

Credit Counseling

If the creditor will not work with you, your best option is to discuss your debt with a credit counseling agency. According to the CFPB, credit counselors are organizations that can advise you on managing your money and debts, help you develop a budget, and usually offer free educational materials and workshops. Credit counselors are usually non-profit organizations. To get started, you can try the Financial Counseling Association of America or the National Foundation for Credit Counseling.

Creditor Chooses One of 3 Things

Option 1: Creditor Charges-off your Debt & Reports to Credit Bureaus

If the creditor chooses to assume you will not pay, your credit score will plummet, but no one will continue to send you bills or contact you for payment. According to bettercreditblog.org, “A charged off account on your credit report will devastate your credit score. A single charge off can cause your credit score to drop 100 points or more”. A charge off on your report will most likely prevent you from obtaining any type of loan for many years to come.

Once your debt is “charged-off” they will no longer work with you to negotiate a payment plan. They might however consider a deal where you negotiate a lump sum payment amount for them to delete the negative charge-off from your credit bureau reporting.

Option 2: Creditor Sells Your Debt to a Collection Agency

Once this happens, you no longer owe the money to the creditor. You owe money to the debt collector (or collection agency). These agencies collect all kinds of debts for creditors including utility bills, cell phone bills, student loan debt, credit card debt, medical debt, care loan debt. According to Investopedia, the creditor pays the collector a percentage, typically 25% to 50% of the amount collected.

It is possible to negotiate a settlement with a credit or debt collection agency, but beware of not paying the full amount that you owe. According to Experian (a credit bureau) “settling a debt instead of paying the full amount can affect your credit scores. When you settle an account, its balance is brought to zero, but your credit report will show the account was settled for less than the full amount”. The negative effects on your credit report last 7 years.

The credit or debt collection agency can also take you to court and sue you for the amount you owe or charge-off your account.

Option 3: Creditor Takes You to Court

If you ignore your bills long enough, a creditor can choose to take you to court and obtain a lawful judgment against you. If a court decides you owe money, the judge can choose to have your wages garnished. Garnishment means that they will take a certain amount out of every paycheck automatically. The automatically removed funds will go to pay your bill in installments until your bill is paid in full.

If they do not choose to take you to court during the statute of limitations for your state, they will no longer have a case. However, even if the statute of limitations passes, you still owe the money and your credit will still be low for 7 years.

Possible Solutions

Your best bet is to pay as much as you can before the creditor starts taking the above 3 actions. You still have time to negotiate a payment plan without credit problems at this point. If you let the situation continue, you gain bad credit which will affect your life for at least 7 years. However, if you have let things go and are at the point of a credit agency contacting you for debt payment, a settlement agreement is most likely your best bet.

According to Wallet Hub, debt settlement affects your credit for up to 7 years, lowering your credit score by as much as 100 points initially and then having less of an effect as time goes on. The percentage of a debt typically accepted in a settlement is 30% to 80%. This percentage fluctuates due to several factors, including the debt holder’s financial situation and cash on hand, the age of the debt, and the creditor in question.

You may also be able to have the debt collection agency delete the bad credit reporting in return for you paying a lump sum negotiated payment.

Creditor Laws

It is not uncommon to owe money to creditors and debt collectors. Many consumers owe debts due to medical issues or accidents they could not have foreseen. Because you have rights, there are laws that govern how creditors can treat you. The FDCPA prohibits debt collection companies from using abusive, unfair or deceptive practices to collect debts from you.

As a consumer, there are practices in place that can cause your credit score to plummet and courts that are able to garnish wages to collect debt. If you are unable to come to an agreement with your creditor for a repayment plan, you will be looking at a settlement with a debt collector, a charge-off, or a court date. Any of these 3 situations can cause painful consequences in the form of bad credit, difficulty obtaining housing, a car, utilities, and credit cards in the future.

Seek Out Answers

If you are not sure where to turn, contact an attorney who can provide you with legal advice about your situation. Your future depends on how you deal with debt. Often, there are laws or defense structures that attorneys understand how to engage in to help you find a way through. Don’t let debt crush the life out of you. Fight back by finding the answers you need.

If a debt collector is harassing you or treating you unfairly but you have an attorney representing you about the debt, the debt collector generally must stop contacting you, and must contact the attorney instead.

Consumer rights attorneys spend years learning about the laws involved with these types of situations. Don’t let creditors fool you into thinking you have no recourse. Contact an experienced attorney from our Law Zebra network to assist you with your debt solution.