Sometimes in life we hit tight spots that we feel we cannot escape from. Here is a really good example of one: You have been having difficulties paying your monthly bills, and you just found out that you have overdrawn your credit account. This alone will hurt your credit score, but you’re not sure you could pay on time every time until you got the debt eliminated.

There are basically two options you can choose from. You can continue to make the monthly payments on that line of credit and not spending on that line anymore, first because it is overdrawn, and second because you do not need any more debt. The second option you could choose is to settle your debt for a smaller amount with your creditor, allowing them to get some sort of payment in the end, and relieving you of your debt obligations. So which one should you choose that would best take into account the potential damage to your credit score?

It really all depends on you. You can best determine what will be your best escape from the mess you’re in based on your income, how well you will be able to continue to pay monthly bills, how much money you owe altogether, and which option will do the most damage to your credit score. But knowing a little bit about the situation can help you to make your decision.

How Much?

The amount of money that you owe is one of the factors that greatly influence your decision. If you owe a lot of money, it may be difficult to find a price at which the debt settlers will be willing to accept without you having to pay beyond your ability. However, because your account is overdrawn, the interest will increase substantially, leaving you with a huge amount of principle to be paid alongside a huge amount of interest.

Keep Struggling

If you chose to keep making the monthly payments, your habit of making late payments probably would not change much because your balance has only gotten bigger and the interest has shot up, only making it more difficult to meet the minimum monthly requirement. You could continue to pay your bills, however late or partial they may be, suffering the consequences of the blows to your credit due to irresponsibility of payments. But is that really better than settling?

Settlement

If you were to choose to settle your debt for a reduced amount, you may risk having your credit suffer. However, if your credit card company settles for less than the full amount as full payment, this is the best option for you, if you can pay off your debt in that reduced amount. Make sure, though, that your creditor has in writing that they will report to the credit bureaus that you have “paid in full”, otherwise your credit score will suffer anyway because you only paid the partial amount.

The short answer yes. The long answer maybe. Before 2005 you would be able to declare bankruptcy on your credit card debt without any evaluation from your creditors especially in the discharge of debts in a chapter 13 claim. Credit card companies have the ability to challenge a bankruptcy by filling an adversary preceding an adversary preceding is a law suit filed in bankruptcy court which is related to your bankruptcy case.

They do this when the credit card companies first feel that you filed bankruptcy because your debt was fraudulent, second that you used the card without any intention to repay in the first place. Not only do the credit card companies have the ability to file an adversary preceding in a chapter 7 circumstance, but also in a chapter 13 circumstance after 2005. There are many things that can cause your creditors to file an adversary proceeding on your bankruptcy here are just few:

1. A newly issued card
2. Using your card for recent vacations and trips
3. Exceeding your limit
4. Having excessive amount of debt at filling
5. Increasing the amount that you use the card just before filling bankruptcy
6. Making large cash advances before filling bankruptcy
7. Talking to a bankruptcy lawyer and then making more charges afterwards

It is definitely better for you the more time you have between any of these red flags and filling for bankruptcy. And the less chances that the creditors will come after you. Here are a few tips to help you when you want to discharge a certain debt. Make sure that you settle with your creditors if they file an adversary preceding hold off to file bankruptcy so that you can put more payment on your credit between the red flag and filling bankruptcy.

You also have other options. You can also do a debt settlement. This should be a last resort before filling bankruptcy if you are worried about your credit score. This can be handled many different ways. You could have a company settle your debt for you. These companies can range from non-profit organizations to government and religious institutions.

This is where you will pay these organizations a substantially less amount then what your debt payments are. A few things to watch out for when using a debt consolidation company is that some will require you to pay their fee before they will start working with your creditors, which could be anywhere from $2000 and $6000. Which means you will be paying them $300 to $600 a month which they will not use towards your debt and in the mean time your debt payments and fees are piling up.

Another option that you can do is work directly with your creditors. Where you can contact your individual creditors and show them that you no longer have the ability to pay them. They will set you up on either a payment plan that you can handle or a settlement plan where you would pay them a certain amount and they would discharge the rest of your debt.

For example if you had $10,000 on a credit card that you no longer could pay they could offer a settlement of $5,000 and call your debt settled. This will show up on your credit report, but away to get the settlement off your credit is to in the future repay the rest of the debt and it will be taken off of your report.

You have had trouble paying your debt lately. In fact, you could not make your payments for the last couple of months because of the lack of money. As a result of this, collection agencies have begun to call you several times a week, reminding you harshly of your debt and they are beginning to demand you to pay it.

Perhaps the collection agencies are asking you a bunch of information that you do not want to give them. But what CAN they ask you that is legal, and not considered harassment? How many of the questions that they ask you do you have to answer, and how much information can you hold back without getting into trouble?

Honestly, you have rights that protect you from giving ANY information to collection agencies. However, this may not always be the smartest thing to do. Ignoring your problems will not make them go away, but confronting them and negotiating will help you to solve them more easily.

1. Bank Account Information

Do not give collection agencies access to your bank account, no matter what they tell you and no matter how much they try to persuade you, they do not need your bank account information to help you settle your debt with your creditors. There are several scam artists out there who claim to be collection agencies who will ask for this information not to help you, but only to drain your bank account and leave you even more broke than you were before.

2. Be Polite

In any case, it is beneficial to be polite to the collection agency. No matter how mad you want to get at them because they are TRYING to provoke anger in you (mainly because it can be used against you in court if you continue to neglect paying your bills), getting angry will not help the matter but only make it worse. You should be polite and patient with the collection agencies, just as you would like them to be patient and work with you. In other words, DON’T say anything to them that would give them reason to sue you in court.

3. Give Information that Will Benefit You

If there is something that the collection agency asks of you that will help you to work out a plan to pay the money back, give it to them. You need to be cooperative so that you can work out a solution to the problem at hand, otherwise the problem is only going to get worse. Let the collection agency know just how much you can afford to pay each month until you have worked it out, and ask them if they can work out a plan that will alow you to do so.

Dealing with collection agencies doesn’t have to be a hassle. It can be easy if you are willing to be reasonable with them and keep the conversation at a civilized level, rather than a heated yelling match. They can help you if you ask for it, or they can make your life totally miserable otherwise.