“The producer was quite nervous, but after the first call, she changed from nervous to excited and continued to handle two more calls,” the credit counselor said. “She was able to turn down offers from the creditors until she could obtain a more reasonable settlement. It was a delight to watch her mature in her experience and move from fear to excitement.”
In our experience, it is not unusual for some debts that have gone to collection to settle at a substantial discount. Debts can often be reduced because collection centers get a commission for closing the debt, even at a fairly low amount. This is not a rule, and some debtors or collection centers seem unwilling to budge on the amount due or rates, but it canʻt hurt to try.
Six Tips to Become Debt-Free Faster
1) Negotiate at the end of the month or quarter.
Creditors want to clear their books of existing debt, especially at key financial times throughout the year. The best times to work on negotiation are the end of a month or the end of a fiscal quarter (end of March, June, September, and December). Often collection agencies are hoping to meet a quota that ends at those times. The best option is the end of the year when creditors are most pressured to clear the debt from the books.
2) Pay a lump sum if possible.
You will typically get a better settlement if you can pay a lump sum rather than payments over time.
3) Ask about a 1099 IRS form for large debts.
If you are able to reach a settlement on a substantial debt, ask the creditor if you will receive a 1099 IRS form for what was “forgiven.” This is important because the IRS treats the amount forgiven as income for taxes purposes. You’ll want to plan for that if the amount is significant.
4) Do not wait until the debt goes to a judgment against you.
Judgments are harder to negotiate and typically have a fixed interest rate. Even if the interest rate is negotiable, therewill be other costs including legal fees.
5) Keep purchases to less than 30% of your available credit. Any use of your existing credit above 29% (of all your available credit) hurts your credit score.
6) Check your credit report at least annually. You are allowed one free report each year from each of the three reporting agencies (Experian, Equifax, and TransUnion). Be sure to check your accounts and credit scores regularly and follow up right away on potential errors.
Credit Counseling or Mediation Can Help You to Reduce Debt
If you’re struggling with debt, you’re not alone. According to the U.S. Department of Agriculture, farm sector debt is nearing levels not seen since the late 1970s and early 1980s. Yet, with a little bit of planning and specific actions, you can shave years off your debt repayment schedule.
Agricultural mediation can help either by mediating with the creditor or by providing credit counseling. There are important differences between the two services.
When we serve as a mediator, we are impartial and work with the creditor and the farmer to facilitate the conversation to reach a mutually acceptable solution. Then we can draft a binding written agreement that documents the terms of the settlement.
When we work as a credit counselor, we only work with the producer to address debt. The credit counselor may suggest tips for negotiating the debt but will not contact the creditor. Because a mediator must remain impartial, one person ‘can’t simultaneously be the credit counselor and mediator.
Itʻs human nature to fear and avoid pain, and debt can become painful. But not dealing with cascading debt problems will only make the situation worse. A mediator or credit counselor can help you organize your debts and systematically develop a plan to address them. Once you have a structured picture, what was undefined and scary becomes more manageable.
If you are uncertain whether you need a credit counselor or mediator to help resolve your debts, please contact us to discuss your specific circumstances or fill out the “request for mediation” form on our website.
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