Americans seem to have learned little from the financial crisis of 2007-2008 and are currently struggling with over $12.7 Trillion in debt. If that wasn't bad enough, recent college graduates are chained with crushing student debt of $1.3 Trillion. More and more Americans are falling behind on debt payments and are facing collections. Contrary to what you may have heard you do have options when it comes to managing your debt.
Assuming you have exhausted other options such as cutting expenses and getting a part-time job, and are unable to meet your current obligations, you should send a letter to your creditor requesting a new payment plan. Be straightforward about your situation and put forward a realistic proposal for a repayment plan. Specify the consession(s) you are asking for on either the interest rate, debt amount, or term. You can expect one of two outcomes: a counteroffer or rejection of your proposal. If you agree to a settlement, be sure to get the new terms in writing and follow through on your end.
If your proposal is rejected you will be expected to fulfill the terms of your debt agreement as they are currently written.
Once your account is referred to collections you will be at the mercy of that particular debt collection representative and the management of that debt collection agency. You may or may not be able to negotiate an acceptable settlement. In any case you will want to continue to make payments on your debt and get all communications in writing should you end up in court. If you do not respond to a collection notice or outright hide assets in an attempt to avoid paying your debts, you will make your legal situation worse.
You should know your rights when it comes to dealing with a debt collection agency.
If you don't pay your debt, a creditor or a debt collection agency can sue you to collect on the amount you owe. Whatever you do, answer all summons and appear at all court ordered hearings. If you can prove you have made a good faith attempt at paying your debt, a judge may be more sympathetic to your case.
At this point, your creditor may offer to settle rather than continue the matter through the courts.
In any case, interest will continue to accrue on any judgement amount until paid off and depending on what state you live in, creditors can still charge interest anywhere from 10% to 12% or more.
Debtors don't typically receive monthly statements so it's hard to determine how much you still owe so it's a good idea to keep careful records of all amounts paid and periodically check with your creditor to verify the outstanding balance.
Judgements remain in force for years and depending on the circumstances, can be renewed for an indefinite period of time. If you are dealing with a judgement and struggling with paying down this debt, you may want to consider negotiating a lump sum settlement or contacting a bankruptcy attorney to discuss if filing for chapter 7 or 13 to discharge the debt is an option.