No matter how you track your debts – by yourself or through a debt relief program – knowing which debts you owe is essential in creating an effective strategy to pay them off (debt avalanche or snowball), avoid debt collector scams and protect your credit score.
Credit Reports
A credit report is a summary of your financial history compiled by companies that collect information on how you pay your bills, such as Equifax, Experian and TransUnion consumer reporting agencies. Lenders use them when deciding if they should loan you money or approve mortgage or loan applications from individuals; businesses offering insurance, renting homes/apartments/cable TV/internet/utility services may also review them before offering loans or making decisions based on these reports.
Accounts” is a section of your credit report that provides key details about all of your current and past accounts, such as length of use and payment status; public records like bankruptcy filings or judgments may also be included here.
Credit reports also contain a comprehensive list of entities who have requested your report in recent weeks or months, known as hard inquiries. A high volume of hard inquiries in an unexpectedly short amount of time may indicate to lenders that you’re searching for credit products elsewhere.
Creditors
Creditors are individuals or businesses that provide money loans in return for repayment; this could be anything from banks and financial institutions, to friends and family members; the person borrowing money is known as their debtor.
Creditors typically submit reports about you to one or more of the three major credit bureaus, and these reports will outline all accounts, their balances and payment histories. Furthermore, these reports can show whether any debt has been sold to a collection agency or is currently defaulting.
Creditors often sell your debt to collection agencies once they realize you will likely never pay it off, which is known as aged debt and subject to collection tactics like wage garnishment and liens. Therefore, it’s crucial that you find out who owes you before any of this happens, so that a plan for paying it back can be devised – including setting a budget, cutting expenses or forgoing new loans altogether.
Collection Agencies
When receiving a call from a debt collection agency, it’s wise to confirm they are indeed collecting on a debt that belongs to you. A good way to do this is to request proof such as an original bill from them that can validate any such attempt at collecting and disclosure that any information provided could be used for that purpose.
Credit card companies usually sell delinquent accounts to third-party debt collection agencies when the account becomes seriously delinquent, but medical bills, rent payments, and student loans may also end up with collections agencies.
When communicating with a debt collection agency, try to establish an agreeable plan. Keep records of your specific negotiations, and request any promises be put in writing by them. Also ask them to stop contacting you once the debt has been settled and update your credit reports accordingly.
Negotiating
Creditors and collection agencies tend to be open and willing to negotiate debt settlement with you; it is key, however, that you approach them politely, openly, and honestly about your financial circumstances. Also helpful is fielding phone calls from creditors/collection agencies directly, keeping notes for negotiations as they happen and telling a compelling narrative of financial hardship. Furthermore, keeping tabs on any updates related to debt issues such as your credit report regularly will allow you stay on top of them more effectively – being resilient will increase the odds of successfully reaching an agreement!