Rebuild Your Credit After A Collection Or Charge
Two of the worst types of account delinquencies are debt collections and charge-offs, both of which are the result of not paying bills for several months. Because they show a serious late payment, which will influence 35% of your credit score, both have severe negative impacts on your credit score. You might have a hard time getting new credit applications approved as long as there’s a charge-off or collection on your credit report. Fortunately, with some effort, you can overcome the damage.
Find Out If Debt Consolidation Is Right For You
If youre really serious in your quest to get out of credit card debt, you might want to considerdebt consolidation, a method designed to lower your payments by giving you a lower interest rate. That means not only can youpay off your debts sooner, but you will be paying less interest along the way.
It entails taking out another loan which might seem like the last thing you want to do but in many cases its the financially savvy choice. Heres what debt consolidation might look like:
- Youll provide financial information dont worry its not intrusive.
- Youll see which personal loan options you qualify for and you can select the variables that work best for you that is, the monthly amount of your payment, how long youll pay it off , and the interest rate.
- Once youve found something you like, you will need to provide a little more detailed financial information.
- Once youre approved and youve agreed to the terms, your loan will fund and youll be ready to tackle your credit card debt!
Debt consolidation through a personal loan lender like Rocket Loans is just one option for how to get out of credit card debt, but it can offer peace of mind and an easy, single payment that helps streamline your whole process.
I Defaulted On My Credit Card Now What
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Dealing with the aftermath of a financial rough patch can be stressful and confusing. You may be drowning in paperwork and have a lot of difficult questions running through your mind.
For instance, if you were unable to pay a credit card bill and ended up defaulting, what should you do now? If youre not sure of the answer, take a look at the details below.
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Working With Debt Settlement Companies
If you can’t make your minimum monthly payments and you want to work out a settlement with your credit card company, but you donât want to do it yourself, a debt settlement company can take over the negotiation for you. Debt settlement companies negotiate with your creditors on your behalf to help you settle your debts for less than you owe. This may be paid in payments or a lump sum. They will often require you to deposit money every month in a savings account for as long as it takes to save up a good lump-sum payment.
Pros and Cons of Using a Debt Settlement Company
There are risks to using a debt settlement company to help you resolve your debts. There are many scams out there, so itâs very important to do your homework and investigate the reputation of any debt settlement company youâre considering using because not all of them are legitimate.
Another risk is that you may have to save up money for months or years to have a lump sum to offer your creditors. During this time, your credit score will suffer and creditors can proceed with collections activity, including filing a lawsuit to garnish your paycheck. This also wonât stop debt collection calls. This is a major difference between a debt settlement program and a debt management plan or filing bankruptcy.
Choose The Right Course Of Action For You
As you can see, theres no reason to panic or give up when your credit is bad. There are ways to recover from bad credit with the correct course of action you just have to do it!
Building credit takes time, but by using one or more of the methods above, you can see an improvement in your credit score sooner than you think.
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Your Rights Under The Fdcpa
As part of the FDCPA, you are protected from debt collection harassment. If you are being contacted by a debt collection agency and you want them to stop calling you, it is advisable to communicate only in writing, as it gives you a record of every exchange regarding the alleged debt. This is called a cease and desist letter.
A cease and desist letter should be a simple and direct notification that you do not want to have any further communication with the debt collection service. Send the letter certified mail with a return receipt request.
*Note: The cease and desist letter only applies to third-party collection services and not the original creditor who gave you the loan.
The final notice will list one of the following actions that will be taken:
Be sure the cease and desist letter is going to the correct debt collection agency. Accounts change hands quickly and you may be dealing with a new collector who has control of your account. If so, send the new collector a cease and desist letter.
If the collection agency continues to ignore the cease and desist letter, contact the Consumer Financial Protection Bureau or your state attorney generals office and file a complaint.
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Work Out A Settlement Deal
However, if Debt Recovery Solutions is able to validate your debt, you are responsible for repaying it. This is the time when youll need to work out a settlement deal.
A pay-for-delete agreement is the most common type of settlement that people make with debt collectors.
Exactly as it sounds, this type of settlement involves paying Debt Recovery Solutions for the debt in exchange for an account deletion.
But pay-for-deletes are notoriously difficult to strike with debt collectors.
Debt Recovery Solutions doesnt want to make concessions for their customers because it might set a precedence for account removals.
However, you may be able to get them to agree if theyre desperate enough.
So start by offering them 30% to 50% of the total debt balance in exchange for a deletion.
The aim is not necessarily to get them to agree to this amount. It just gives you room to work with them to come to a compromise.
Once both parties are satisfied with an agreement, ask Debt Recovery Solutions to send the full terms and conditions on an official company letterhead.
This gives you physical proof of an agreement that you can use to back up your claims later on.
Once you receive the written agreement, make your first payment to them. They should remove their account within 30 days of receiving your payment.
If they dont, remind them of the physical agreement that you have from them.
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How Can I Check If My Credit Card Bill Is Delinquent
If you want to know whether your credit card bill is delinquent, log into your online account or call the customer service number on the back of your credit card. Youll be able to check your payment history and confirm whether or not you have any overdue bills. Your lender will also contact youby mail, email, text or mobile alertwhen you are late on a payment, so you may already have received notification of a potential credit card delinquency.
If you discover that your credit card bill is delinquent, make a payment as quickly as possible. If this is your first delinquency and you are less than 30 days late, you may even be able to contact your credit card issuer and get your late fee removed.
% Balance Transfer Credit Card
It might seem counterintuitive to apply for a credit card when your main goal is to get out of credit card debt, but 0% balance transfer cards can help save you money in the long run. Find a card that offers a long 0% introductory period preferably 15 to 18 months and transfer all of your outstanding credit card debt to that one account. You’ll have one simple payment each month, and you wont pay interest.
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Option : Enroll In A Debt Management Program Through A Credit Counseling Agency
The benefit of professional help: A debt management program is the solution you use if you cant make progress on your own. If you dont have good credit or youve missed some payments, your creditors may be resistant to working with you. Having the help of a credit counseling agency means you have a team advocating with creditors on your behalf. That makes it easier to craft a repayment plan that your creditors will actually accept.
How It Works:
Become An Authorized User
If you are unable to open a new credit card or take out a loan because your credit is bad, consider asking a friend or family member who has good credit to help you out. By piggybacking on that persons credit card account as an authorized user, the credit card will show up on your credit report.
As long as the account owner pays the balance off in full every month and never skips a payment, your own credit reports and scores will benefit without you having to do anything.
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Break Free From Dunning
Dunning software has been regularly used to recover payments, but with limited success. Hereâs a fact that might just make you weep. Weâve found that dunning software only recovers around 15% of all billing failures. âWhy do businesses keep using this software?â is clearly the question.
A simple answer is that dunning is the way itâs always been done. However, just because something has always been done a certain way doesnât mean is should continue to be done that way, especially when that way just isnât working anymore and a ton of money is being left on the table month in and month out.
The bottom line is people just canât relate to automation, and even the most sophisticated and fancy automated emails wonât convince a customer to continue with their subscription. As we say at Gravy, âDunning software just canât care.â
Another eye-opening fact about dunning software emails is that 85% of them go unread. Unfortunately, most businesses give up on recovering payment when the dunning software emails fail. Sadly, believing the myth that dunning software is the most efficient way to collect failed payments can sink your business.
If your dunning email software fails to do the job, pump the breaks on canceling your customerâs subscription. Go beyond dunning to boost your recovery of failed credit card payments by using Gravyâs services.
Always Pay On Time Starting Today
The worst thing you can do to your credit history and scores is miss payments. A couple of delinquencies in the distant past wont be dramatically terrible, but a succession of them in the last few years is an indication that youre in financial trouble, and will cause your credit scores to plummet.
Late payments will harm your credit report and score for seven years, with less negative impact over time.
Although you cant erase history, you can change the future. From this point forward, meet your due dates.
The more on-time payments listed on your reports, the less the old dings will matter.
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Dealing With The Fallout And Moving Forward
Remember that once youve defaulted on a credit card bill, the damage to your credit is already done. Youll be stuck with the default on your credit report for seven years, but there are steps you can take in that time to start recovering. These include:
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Paying your bills on time this should be one of your top financial priorities
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Paying your credit card bills in full every month
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Keeping the balances on your credit cards low make frequent payments to accomplish this
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Applying for credit very sparingly
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Checking your credit report at least once per year to track your progress
About the author:Lindsay Konsko is a former staff writer covering credit cards and consumer credit for NerdWallet.Read more
What Are My Options
There are several potential ways you can tackle your credit card debt and begin to manage it.
The first is creating a payment strategy to repay your debts. This plan can involve a variety of factors including paying more than the minimum payment per month, paying off your loans one by one, starting with the smallest, or automating your payments.
Another method is to consolidate your debt into one account. If you have more than one credit card you can consider transferring all of your debt into one card, so you only have one payment to keep track of.
Negotiating with your creditors is a third way to tackle your debt, however, there is zero guarantee that your creditors will be sympathetic and make adjustments to your plan such as lowering your APR.
These options may work for a small amount of debt, but what can you do when your debt is really out of control? You may need more involved help.
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Can I Negotiate Credit Card Debt Settlement On My Own
Yes, you can, but that doesn’t mean it’s the best idea. If you are an expert negotiator with knowledge of how debt settlement works and loads of time and patience, you can contact your creditors directly, one-by-one, and obtain written agreements covering all the legal terms of your settlement deal. Or you can work with a trusted debt settlement company like ClearOne Advantage and let it do all the work on your behalf.
A debt settlement company has more clout than an individual debtor, not to mention more experience, so they can negotiate from a better position than individual debtors.
Should I Switch To A Different Card To Pay Off My Credit Card Bills
A balance transfer is when you repay existing debt with a new credit card. This moves your balance to a new card. You could save money by paying less interest on your existing debt.
Use this free calculator to see how long it will take to clear your debt with your current card. Then, compare that with how long it would take if you switched to a different card.
Remember to check:
- How much youre being charged to transfer your balance
- If your interest rate will increase after a certain time
Talk to your credit card company or check their website. You might be able to do this online.
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Be Aware Of Possible Disadvantages
Negotiating a credit card debt settlement can have some downsides that you should be aware of before making a decision to do it.
Depending on how it plays out, negotiating a credit card debt settlement can significantly lower your .
Even before you enter into an agreement, companies may close your account or prevent you from using the credit line any further. The process can also temporarily lower your access to capital from other borrowing sources as you are now seen as a bigger risk.
Other lenders may charge you higher interest rates to compensate for your heightened default probability. In some states, your insurance costs for things like automobile insurance might rise. The length and severity of these outcomes will be far worse with a bankruptcy filing, so it can still be worth it to go through with the settlement.
It’s also important to note that forgiven credit card debt can be treated as taxable income. If the total debt forgiven is $600 or more, the lender will give you a Form 1099-C, Cancellation of Debt, to use in your personal tax filing. Do not try to avoid claiming this as the IRS will be notified of it by the lender.
Your credit card company might not be willing to entertain or negotiate a credit card debt settlement. If not, it’s time to consider discussing your options with a bankruptcy attorney. In some situations, it’s far easier to rebuild your personal balance sheet after having your liabilities discharged by a court.
Your Credit Card Account Is Sold To A Debt Buyer
There are different tiers of debt sales. Your account can be sold several times and will have a different value at each sale. I want to focus on the sale done by the original creditor, who you opened your credit card account with.
Years ago, while attending a collection industry seminar, I sat down briefly with a VP of risk management for the now defunct WAMU. He told me, at that time, WAMU was catching bids of 15 cents on the dollar for freshly charged-off debt . That time frame represents some of the highest prices banks could fetch for portfolios of charged off credit cards.
Charge-off generally means the creditor is no longer expecting to be paid and is recording the debt amount as a loss. Banks are obligated to move your account from their asset column, over to their loss column, and no later than a prescribed period. This time frame will often look to you like 6 or 7 months of missing your payments. Credit cards can be charged off earlier than that, but it is not typical, and for the reasons I point out in this article about why your account getting charged off is important to settling for less. Be sure to read that so you understand that your bank charging off your debt does not change the fact that you still owe it.
These buyers risk their capital with an expectation that they will be profitable by collecting on enough of the bad debts they purchase.
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