Due to the recession, a large number of people have lost their job whereas some had to go through a pay cut. As a result, they are facing severe problems in paying off our debts - be it the mortgage or the unsecured debts. If the creditors do not receive the payments on time, they can charge off the debts. Credit card debts, medical bills, second mortgage, etc. can be charged off by the creditor/lender.
However, if you are facing such a situation and if your creditor has sold off the account to a collection agency, then will have a severe negative impact on our credit report. Moreover, the collection agencies are quite aggressive and can take any step to recover the dues. Thus, it's better to deal with the creditor directly and pay off the dues rather than letting it go into collections.
Check out the 4 ways which will help you avoid collections:
1. Negotiate with your original creditor:
It is always better to deal with the original creditors rather than the collection agency. You will have to negotiate with your original creditor and check out if he can reduce your payments for the time being. The creditor may give you an affordable payment plan with low interest rates which will help you in paying off the debt.
2. Go for credit counseling:
You can take advantage of this option if your account is still with your original creditor. If the creditor has not charged off your account, you can contact the credit counseling agencies for help. While you for a credit counseling, you'll meet with a credit counselor who'll advice you on managing your finances. The credit counseling company will help you in dealing with your credit card debt. Also, they will explain how to improve your credit score. There are various non-profit organizations as well which provide this option. You may contact such organizations for help.
3. Settle your debts with a debt settlement company:
You will find a number of debt settlement companies which can help you in getting out of debt. The company will create a trust account for you wherein you will have to make monthly payments. The settlement company will start negotiating with your creditors. When the creditor find that you won't be able to pay the debts in full, he would be ready to settle the debts for 40% to 60%. Though this will have a negative affect on your credit report, with time you would be able to rebuild your credit.
4. Filing bankruptcy:
Filing bankruptcy should be the last option as it has severe negative effects on your credit. If there are no other options left, then you can think about filing Chapter 7 or Chapter 13. You need to contact a bankruptcy attorney who would help you in deciding which chapter is best suited to your situation.