6 Steps to Take If Your Debt Goes Into Collections

If you’ve fallen behind on your bills, there’s a good chance a debt collector may have contacted you or will be contacting you shortly. A debt collector works for a collection agency who bought a debt from a creditor to whom you owe money. Since their job is to collect the money, they may plague you with phone calls until the account is fully paid off.
Here are six steps to consider to get your debt out of collections.
1. Don’t Stress
Whether you’ve dealt with collection agencies in the past or you’re new to the process, receiving threatening calls and statements in the mail (more on this in a minute) can be stressful and scary. It is important not to stress or panic. You are not alone! Millions of debts have gone into collections before. However, it is also important to note that, unless you take action, the debt in collections will not go away. Avoiding the situation will only make matters worse. Failure to act can result in a judgement, which can lead to garnishment of your wages or a frozen bank account.
2. Know Your Rights
It is important to know your rights when it comes to dealing with debt collectors as, unfortunately, it is not uncommon for some to abuse their power. The Fair Debt Collection Practices Act states that debt collectors are not permitted to use abusive or obscene language, make any threats of violence or harm, repeatedly use the telephone to annoy and harass a debtor, call before 8 a.m. or after 9 p.m., or discuss your debt with a third party. They must also respect your request to not call you at work, if you have indicated that.
A debt collector may only contact other people regarding your debt that you have approved, such as an attorney or a family member. (Note: They can call other third parties, but only for local information and they can’t say they’re a debt collector.) If you feel a debt collector has violated your rights, you should file a complaint with the Federal Trade Commission.
3. Gather Information to Validate the Debt
Gathering all the information you have regarding the debt in question is a good start. Consider checking your credit report for any inquiries or anything that may seem like suspicious activity. (You can view two of your credit scores for free on Credit.com.) If the debt in collections is in fact yours, gather information regarding the original creditor who sold the debt, as well as any evidence of your payment history with that creditor.
Believe it or not, it’s quite common for collection agencies to make mistakes regarding debt they claim they are owed. You can verify a debt within 30 days after a collection agency has sent you a validation letter.
4. Pay in Full or Arrange a Repayment Plan
If your validation notice proves the debt is in fact yours, there are a few actions you can take. One option is to pay the debt in full. Many may decide to take this option to stop the collection calls and turn to fixing their credit. Unfortunately, this is not possible for everyone. If you are unable to pay your debt in full, consider negotiating a repayment plan with the collection agency. Creating a repayment plan that works for you can help you settle your debt while simultaneously improving your credit score.
5. Negotiate a Deal
If funds are tight and you find yourself to be a negotiator, you may be able to lower the amount you owe to the collection agency. While this may save you some money, it’s not always easy or possible. List any hardships you have that may have prevented you from making your payments. When negotiating, it’s important to be firm with your offer, keep notes of all conversations and take note of who you’ve spoken with. If you’re able to negotiate a deal, consider getting everything, including your payment schedule, in writing.
6. Seek Help
There’s no shame in asking for help. Before you take steps to pay your debt in full or negotiate a deal, consider hiring a debt-settlement law firm (Full Disclosure: I am one). These legal professionals have experience dealing with collectors and can negotiate on your behalf. Just make sure to do your research and find someone reputable.
Knowing what a debt collector can and cannot do will help protect you from unfair practices used by agencies to collect on the debt. You should also consider meeting with a financial adviser who can help you understand your financial situation so no future debts end up in collections. Understanding why your debt went into collections in the first place can prevent it from happening again.
Debt collector calling ad nauseam? You can find 50 ways to deal right here.

Image: MartinPrescott
The post 6 Steps to Take If Your Debt Goes Into Collections appeared first on Credit.com.
Source: Ramsey Debt Relief Feed 1

Moving to One of These 9 States Could Save You Thousands

Each year, taxpayers pay trillions in income taxes. In fact, the government collected approximately $3 trillion last year. If you’re like most taxpayers, you owe both federal and state taxes, which means an even bigger chunk of your paycheck goes to the government.
When you’re carrying debt — whether it’s student loans or a credit card balance — it can be frustrating to see so much of your hard-earned money leave your hands. That’s why many people consider moving somewhere with no state income tax.
According to a new study by Student Loan Hero, taxpayers could save an average of $1,977 a year by moving to a state with no income tax. But before you pack your bags, find out what factors you should keep in mind.
States Without Income Taxes
States that collect income taxes use them to fund essential programs and services for residents. More than 50% of state tax revenues go toward education and healthcare initiatives, such as Medicaid. State agencies also use collected income taxes to pay for services, including transportation and law enforcement.
Residents in most of the country must pay federal and state income taxes. However, nine states don’t levy any state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Because you don’t have to pay state taxes, you can get a significant yearly savings.
How Much Could You Save?
How much you could save by moving to a state with no income tax depends on your income bracket and where you live now. For example, Oregon workers have a state income tax of 7.75%, the highest rate of any state in the country. Someone earning the median salary in the state — $49,710 — would pay $3,851 in addition to their federal taxes.
Moving to another state to save that kind of cash can be tempting. So tempting, in fact, that 30% of survey respondents would move to a state with no income tax to save money. Moreover, 38% of respondents said they’d use their tax savings to accelerate their student loan debt repayment. (To see how student loans are impacting your credit, check out your free credit report snapshot on Credit.com..)
Using Your Savings for Debt Repayment
The savings you get from not paying state taxes can save you even more money in the long run. Using that money to repay your loan helps you pay off the loans faster, cutting down on interest charges. It can also save you thousands over the life of your loan.
For example, say you had $35,000 in student loans with an interest rate of 6.31% (the current rate for Grad PLUS loans) and a minimum monthly payment of $400 a month. Now, take the average $1,977 you would save by moving to a state without income tax and divide it up over 12 months. That would give you an extra $165 in your pocket each month. If you put that additional amount toward your student loans, you could pay off your debt about three and a half years early and save more than $4,500 in interest.
Other Costs
Before packing up and moving to a new state, consider other costs that may eat into your savings. Between putting down a deposit on a new apartment, moving your belongings and registering your vehicle in a new state, you can spend thousands.
In addition, some states with no income tax make up their revenue through other means, such as sales tax. Florida has a 6% sales tax on goods and services, including essentials such as clothing or food. If you’re not used to paying taxes on groceries, the added sales tax can put a dent in your budget. That’s why it’s important to compare the cost of living when deciding if it’s worth it to move to a new state.
Moving to Save Money
Depending on your circumstances, moving to a state with no income tax can give you a substantial savings. You can use that money to pay off your student loans faster, boost your emergency fund or catch up on retirement savings. But before you make the leap, be sure you understand the added expenses of moving so your decision is financially sound.
Image: xavierarnau
The post Moving to One of These 9 States Could Save You Thousands appeared first on Credit.com.
Source: Ramsey Debt Relief Feed 1