Quick Answer: To settle debt with collection agencies, one should first consult a bankruptcy attorney before assuming it’s too late, even when employed again. The expert recommends establishing savings and retirement plans before pursuing settlements, and notes that someone willing to settle for less than owed shouldn’t exclude bankruptcy for moral reasons.
“Dear Steve,
Time to Face the Dragon?
I have 40k in credit card debt amassed during 2 years of unemployment.
Every weekday I read the enforcement actions, filings and fine print the outlets skip, and turn them into the one or two moves that actually improve your position — a rate worth moving for, a fee you can refuse, a deadline to beat before it costs you.
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28k of it has been sold to third party collectors. I am now in a position to clean it all up.
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I realize now I should have declared bankruptcy.
But it’s too late now since I am employed again. So- to pay or not to pay? I am inclined to try to settle.
How do I go about doing that?
How do I methodically settle debts with collection agencies?
Chris”
Dear Chris,
Let’s slay that dragon.
The first point is I would not automatically assume it’s too late to file bankruptcy. You can’t make an educated decision about if bankruptcy is right for you unless you meet with a local bankruptcy attorney and talk over your specific situation.
You can click here to find a local bankruptcy attorney and talk to them for free about your specific situation. Get the facts and then you can make an informed and educated decision if bankruptcy is right for you.
While you might be hesitant about bankruptcy for some moral or religious reason, you appear to have no issue with settling your debt for less than you owe. You can’t maintain one position and exclude the other. Otherwise you would be focused on repaying your debt in full.
My second concern is before you embark on dealing with your debt we need to make sure you are setup on a savings plan and saving for retirement. See this article.
I would also suggest if you want to go the settlement route you save up enough money to pay any settlement agreement you negotiate in a lump sum. Safely you’d need to have about 50 percent of the balance on hand before you start to negotiate.
If you’d like to learn more about settling the debt yourself, here are a number of resources.
Here is a podcast I previously did all about do it yourself debt settlement.
And here are some resources to help educate you about debt settlement before you leap in with both feet.
- Debt Settlement Pros and Cons. My No BS Guide to Settling Your Debt.
- The Hidden Cost of Debt Settlement
Please post your responses and follow-up messages to me on this in the comments section below.
Know Your Rights: If a debt collector is contacting you, you have legal protections. See the complete list of FDCPA violations collectors commit most often. Use the free Debt Validation Letter Generator to demand proof of the debt, or check this collector’s complaint history with the Scam-O-Meter.
Dealing With Debt? Before you pay a collector, understand all your debt relief options — including ones the collector won’t tell you about. If the debt feels unmanageable, take the 2-minute bankruptcy quiz to see if the math favors a fresh start. Federal Reserve research shows filers recover faster than those who don’t file.
