Dealing with Old, Small Debts

by Benjamin Little, a guest blogger

Everyone’s debt situation is different so the best approach for dealing with it will vary.  The following are guidelines for dealing with small (generally under $2,000) debt which is showing on your credit report as being “charged off” or “in collections.”

The most important thing you must do is to keep records of every communication you have with any collection agency, credit reporting agency, or creditor.  Set up a filing system.  It can be as simple as a shoe box.  You must be able to document everything you do.  This will help you succeed and also show that you are trying.  Consolidated Credit has a booklet called “Repair Your Credit,” which may be helpful.

1.    Work out a budget to determine how much you can send your creditors every month.  This will probably mean cutting back on some of your expenses.  Be creative and aggressive.

2.    Identify who is reporting that you owe money.  This will show on your credit report.  If the creditor contact information is not showing at the bottom of your credit report, get a free credit report from www.annualcreditreport.com or 877-322-8228.

3.    Make sure that the debt is really yours.  If it is not, dispute it with the creditor by calling them or sending them a letter.  They must respond within 30 days.

4.    Look out for duplicates.  A single debt may be on your report more than once.  Dispute this with the credit reporting agency.

5.    Work with the smaller and newer debt.  You will be able to get rid of the small stuff faster.  Negative information will generally drop off your credit report after seven years.

6.    If you owe a doctor or hospital, contact their billing department directly even if it is “in collections.”  They may work with you by lowering the amount you owe and accepting small weekly or monthly payments.  If they sold the debt to a collection agency, they sold it for much less than you owed and they probably will not work with you.  You must contact the collection agency directly.  Remember that they are trying to make as much money as possible.  If you owed $200 to a doctor, he may have sold the debt to the collection agency for $50.  They will tell you that you must give them $200, but will settle for less.  Probably anyone you deal with at the collection agency is on commission and will be paid more the more they collect from you.

7.    Generally, your other creditors will work the same way as doctors and hospitals, but they may be a little more difficult to deal with.

8.    Generally, when communicating with your creditors:

a.    Always keep a log of who you talked with and the date and time.  “Spoke with Mary Smith at ABC Collections, 800-555-1212 on Friday June 10 at 11:00 am.  She said I should send my payment of $25 by the first of the month to 123 Main Street.”  Keep all your notes in a note book.

b.    It is best to communicate in writing.  Always follow up a phone conversation with a letter.  Type it, if possible.  Include your name, address, social security number, and account number at the top of the letter.

c.    Send letters Certified Mail, Return Receipt Requested.  Save the receipts.

d.    Always be brief and concise.  Ranting or dragging unrelated things into the discussion will work against you.

e.    Always be professional.

f.     Never send original documents.  Send copies.

g.    Try to get your creditors to confirm to you in writing whatever arrangement you make with them.  Be insistent, but they may not agree.  At a minimum keep a record in your log.

h.    Try to make your payments with a check, so that you will have a record.  Please note you may have to provide a copy of the cancelled check so ensure you fully understand your bank’s process for obtaining this.  If you do not have a checking account a money order will also work.  Be sure you make the money order payable to the creditor and keep a photo copy of it.  (The Post Office may be the cheapest place to get a money order.)

9.    Specifically, when disputing, keep it simple.  Put your name, social security number, mailing address, and date at the top of the letter.  Give one short paragraph for each problem with your account number, the name of the creditor, and what the problem is, for example “not my account,” or “I paid it off a year ago.”

You are the one who must take charge of your situation.  It is not as difficult as it looks.  You will have successes.  You will have setbacks.  Keep charging ahead.  Ask for help if you need it.

If you have other credit problems, there are several structured programs which may be of help to you.

Good luck!