Monday, April 11, 2011

How To Handle Tax Time Bill Collectors

Isn’t it amazing how creditors seem to come out of the woodwork during tax time? Bill collectors who haven’t attempted to contact you in months or possibly years begin to send settlement letters almost as if they sniff a good return coming around.

Well, don’t be fooled. Although you definitely want to meet your obligations, this might be the worst time to answer the phone and start sharing too much information. Collectors know that you may well qualify for a hefty tax refund and have their own idea of how they’d like to see you spend it. They see it as a great opportunity for them to get paid and that might true. Just make sure that the decision benefits you as well and is on your terms.

Here’s how to deal with your tax-time bill collectors:

1. Create a budget. 

It’s important to have a budget in place so you don’t commit to giving a creditor something you cannot realistically afford to pay. Don’t be pressured into agreeing to a payment plan unless you know you can honor it well pass tax time. Despite any scare tactics from a collector, YOU and you alone know what you can commit to. Do not make a bad situation worse!

Because you may not budget in your everyday life, let me give you a few tips on how budgeting this windfall should work. If you receive anything close to the national average refund of $3000, do not reserve $300 for debt and blow the other $2700 on shopping sprees and vacations. If you have debt, for heaven’s sake, dedicate a hefty percentage (60%+) towards shrinking your debt. Let’s face it. What good is it to come back from the Bahamas with creditors still nagging you daily? For some of you, the mere fact that you pay a few folks off could make you feel like you’re on a peaceful vacation even if you stayed at home!
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2. Settle the debt.

Once you have a specific dollar amount in place to put toward your debt, it’s time to work out a settlement. Make sure you prioritize which debts will be most beneficial to pay off first (i.e. high interest rate credit cards or judgments or liens on your credit report.) More than likely your original creditor is out of the picture by now and your debt has been sold to a collection agency. This collector bought the debt at a discount, so they should be open to settling. If you have multiple debts and one collector isn’t playing ball, move on to someone who will. Again, it’s been this long. If they won’t even work with you around tax time when they know you actually have some cash on hand, they’re not serious about getting the debt handled as soon as possible.

Also note that it is not uncommon for a high pressure bill collector to “advise” you to apply for a Refund Anticipation Loan (RAL) in order to get a same-day or next-day check. Their mission will be to make you feel as if the settlement agreement will only be valid for the next 48 hours or 5 days or whatever. That’s bologna! Don’t fall for it. These loans are written against your tax refund, so you don’t even have to think about paying them back.  The IRS will deposit the funds into the tax servicer’s bank account instead of yours. Sound convenient? It may seem so until you factor in the astronomical fees associated with RALs. You’ve waited all year for this tax refund, so what’s another week or two? And second, you’ve owed this creditor for how many months, or dare I say, years? Again, what’s another week or two?

Important: Before sending any money to a creditor for a settlement, insist on getting a written statement from your creditor that paying the agreed amount will “settle this debt in full.”

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3. Communicate on your terms.

The collector has a right to contact you, but not harass you by constantly calling you. According to the Federal Trade Commission's published interpretation of the Fair Debt Collection Practices Act, collectors cannot continuously call you. Section 806(5) prohibits contacting the consumer by telephone "repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number." ‘Continuously’ means making a series of telephone calls, one right after the other. ‘Repeatedly’ means calling with excessive frequency under the circumstances. Talk to bill collectors on your terms.  I suggest no more than once every two weeks. If they insist on calling more often than that, remind them that you will talk to them on the agreed upon date and hang up.

You are not the first person to be badgered by a bill collector and you certainly won’t be the last. Tax time is a great time to improve your financial life and get rid of debt, but do it with a plan and on your terms. Maintain control. A stranger on the telephone shouldn’t be able to control your circumstances.

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Until Next Time,

Seek Wisdom, Find Wealth & Be Blessed!

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