16 Mar Debt Payoff – Tips, Tricks, Disciplines

Paying off debt is a rewarding experience when you start to pick up steam, but getting started can be an overwhelming experience, a headache, and can easily detour transitioning your enthusiasm into execution.  Don’t let these hurdles get in the way, get started on your decision, make a plan, and execute the small steps.

To get started you need to know where you stand in total debts to all creditors.  The easiest way to do this is to get a copy of your credit report and verify everything there is accurate.  In addition to this you might have some revolving bills to creditors that don’t hit your credit report unless you are delinquent.  Some examples might be your electric company, gas provider, medical bills, etc.  To get around this, pay close attention to your mail, and start stacking up invoices for anything coming that isn’t on the credit report.

From there, make your plan if you haven’t already to pursue the smallest debt first snowball or debt avalanche method.  Both work, both are great, both will help you reach your goal of debt freedom.  If you have anything that is in collections, I’d make the phone call to the collections company immediately and just ask them where your debt stands, and what your options are.  I wouldn’t tell them how much money you have (assuming you have something prepared to pay), let them tell you what the offer or opportunity is.  Listen to what they are saying, they might offer installments that are more friendly to pay off, they may offer to stop accruing additional interest, they may offer a smaller amount owed in exchange for a lump sum payment. The key is to listen, and ask “do you have any other options that might help me out?”.  Whatever understanding is reached between you and them to the terms of your debt or payback timeline, you must get it in writing before you give them a penny. I would never under any circumstance make an installment payment, or payment in full without something from their company in writing.  If there are no terms changes then of course you can make a payment to reduce what is owed or pay in full as you already have a document demonstrating what is owed and you are paying it in full.  If you do negotiate more favorable terms, there are a couple examples below of what that might look like and some steps I’d strongly recommend taking to protect yourself and your sweet new deal you’ve negotiated.

An example would be you owe $1,000 to a collections company for electric bills you never paid and piled up with interest and they agree to take $600 if you pay in full.  Simply explain you need an updated letter stating that is the newly agreed upon amount if paid in full, post marked by a specific date and that by paying this amount they will consider the matter completely resolved with no further recourse.  When that letter hits your mailbox, congrats, make the payment with a money order or cashiers check, make a photo copy of the executed check and letter, save it forever, mail it in, and follow up requesting a paid in full letter.  Save that letter forever, you may need it when their bad record keeping comes knocking on your door.

A second example would be the same $1000 owed to the same collections agency and maybe they choose to accept $750 in total to consider the debt paid in full but you are allowed to make two payments to knock it out.  Follow all the same steps above getting a letter that states this, and execute accordingly.

If you go into this with a plan knowing what you have in cash to pay down or pay off an outstanding balance you will always have the upper hand. If you listen carefully to what they offer, and allow them to negotiate against themselves you can come out ahead.  Jocko Wilink, a former Navy Seal Commander says “when I listen, I know twice as much as you.  You see, I know everything you know because you just told me, and I know everything I know because I know what I know”.  Thus, you can make decisions on what to offer or ask for above and beyond their first offer.  I once did this with a crazy small bill for around $90 that I didn’t know I had.  They offered to clear it out for $70 or something like that and I offered less than half as long as they sent me a letter.  They accepted and that was that.

The ultimate goal here is to make your plan, know where you stand, stack up the letters, make the phone calls, listen, and execute the best deal you can get for you.

Of course if you remain in good standing on all of your various debts and you don’t have any collections situations you won’t likely be able to negotiate your debt down but you may be able to request a lower interest rate or something to make your situation more favorable as you pay your way down and out of debt.  Good luck and stay the course!