Hearing the phone ring can make your heart sink when you’re in debt. Collection agencies tend to call, email or text repeatedly, hounding you for a payment you can’t afford to make and exacerbating an already stressful situation.
However, you can handle it. If your online business is struggling under the weight of unpaid bills, here are some tips for getting back to good standing, plus what to do if your debt goes to collections.
Is Your Payment Overdue?
First, it’s important to understand the situation you’re dealing with. Your account is not yet delinquent if you’re in debt but haven’t passed the payment due date. However, if your debt is past due, it’s technically considered delinquent.
This isn’t as bad as it sounds. In fact, you’ll usually have around 120 to 180 days after the due date before your bill is turned over to collections, although this time frame might vary.
If your debt goes to collections, the company you owe money to sold it to a third party called a collection agency. Its sole responsibility is to get you to pay. You might be able to pay off your debt before the collectors start calling, but if that ship has already sailed, you’ll have to handle the situation a little differently.
What Are Your Rights?
If your debt went to collections, it’s essential to know which laws are on your side. There are practices that debt collectors can and cannot legally do. The Fair Debt Collection Practices Act (FDCPA) governs how debt collection agencies behave in the United States. They are allowed to:
- Attempt to reach you by calling, texting, emailing, sending you letters or directly messaging you on social media
- Contact you at work unless you’ve asked them to stop
- Sue you to obtain payment
- Contact you every day between the hours of 8 a.m. and 9 p.m.
- Call your family members to figure out how to reach you
- Charge interest, but not on top of the interest you’re already paying
- Try to make you pay old debts that are past the statute of limitations, the time frame in which debt collectors can sue you for unpaid debts
This might seem overwhelming. However, rest assured that debt collectors aren’t allowed to:
- Lie about who they are or how much you owe
- Threaten you with bodily harm or jail time
- Contact you if you sent them a formal written request to stop
- Use foul language
- Garnish your wages — meaning directly taking funds from your checking or savings account — without taking you to court, unless you have a student loan or IRS debt
- Tell other people about your debt more than once to shame you
- Tag you publicly on social media
How to Navigate Debt Collection Agencies
Now that you understand your rights protected by the FDCPA, it’s time to start paying off your debt. What if you’re so far behind that collection agencies are involved?
It’s easier than you think. Business owners likely already have the skills required to cut through red tape, make smart financial decisions and organize priorities. Here’s how to get started.
- Pay the Essentials First
No matter how small your debt is, if you can’t afford to pay it without breaking the bank, then you need to wait. You still have to keep your business up and running, keep the lights on in your house and put food on the table. Those are your top priorities. Pay your recurring bills first and see if you have enough left over to tackle your debt.
- Ask for a Validation Letter
Send a written request to the collection agency for a formal validation letter. This document will tell you how much you owe, when you need to pay and who is asking for the money. The company might have already sent you this, but if they didn’t, then demand to get one. It’s crucial for bookkeeping. You can also use it to prove what you owe if the collection agency makes a mistake, which occasionally happens.
- Collect Your Records
Organize all paperwork in a folder dedicated to your debt. Keep every record of payments you’ve made, including emails and letters with confirmation numbers on them. If you have the technology to do so, you can also record your phone calls with the debt collection agency in case of future legal issues.
- Protect Your Account Information
When you start paying the collection agency, be wary about giving them your bank account and credit card information. They may hit you with “banking fees” for collecting your debt that are hard to dispute. Avoid this situation by paying with a cashier’s check or money order.
- Ask for a Discount
Some debt collectors will give you a discount if you ask politely. First, thank them for getting in touch with you and tell them you want to pay. You can use their name if they provide it, and tell them you appreciate their call.
Ask them if they offer any payment discounts. Point out that you’d be able to pay off the debt right now, in full, if they reduced it slightly. Clarify that the only reason you haven’t paid yet is you can’t afford it.
This negotiation tactic usually won’t work if you set up a payment plan. However, in the U.S., almost all medical billing companies will reduce your debt if you ask politely and explain that you’re ready to pay it off. After all, they want to get rid of the debt, too. This can improve your credit score faster than paying in installments.
- Set up a Payment Plan
Though it might cost more overall, if you can’t pay the total amount, ask if you can make installments over the next few months. Most collection agencies are happy to receive even small amounts of money, so some will agree to this strategy.
Tips for Paying off Debt
Now that you know how to handle collections, how do you actually start paying off your debt? Here are some strategies that should help whether your account is overdue or not.
- Increase Your Income
See if you can make more money, whether you need to raise prices, offer new services, take on a side job or sell unused inventory. You could even rent out your extra bedroom or do a few chores for your neighbors. This can help you temporarily bolster your bank account while you pay off your debt.
- Evaluate Your Budget
First, identify how much debt you have to pay off. If you have unpaid bills from multiple sources, gather them in a folder and add up the total charges. Next, identify how much income you’re generating every month. Use this information to decide how quickly you can pay off your debt. Factor in the due dates and which companies will allow you to set up payment plans.
- Reduce Your Expenses
When it comes to saving money, small changes add up quickly. Negotiate with your business suppliers to see if they offer discounts and if you’re overpaying for any inventory. Which products are selling like hotcakes, and which languish on the virtual shelves?
Are there any products you could buy a cheaper version of? For example, if you sell custom-printed mugs, see if there are companies that sell blank ones for even a few cents less than your current supplier. Shop around to find cheaper raw materials and services.
- Choose a Debt-Reduction Strategy
Have you heard of the snowball method? This debt-reduction technique involves paying your smallest debt first, then the next largest, until you pay off the most imposing bill last. It helps you appease several creditors or debt collectors early on. The snowball method also reduces the paperwork you have to organize by knocking out several small bills.
Another technique is to pay off the debt with the highest interest rate first since it will cost you the most in the long run. This is called the high interest rate method.
You could dedicate a certain percentage of your profits to paying off your debts or decide what you won’t spend money on — like going out to eat — until your bills are paid off. There are many viable strategies, so find the ones that work best for you.
- Set a Timeline
Look at your budget to determine the earliest date you could pay off your debt. Then, set a timeline to start working toward that goal. Create smaller deadlines and milestones you need to meet along the way to reach your target, and put them in plain view on your calendar so you remember them.
- Restructure Your Debt
This might be a good idea if you’re struggling to make payments on time. Many businesses hire a debt relief company to help them with this process. You’ll need to prepare a hardship letter that details why you want to restructure your debt, then negotiate with your creditors — or let the debt relief company do it — to create a more feasible payment plan.
Getting Back to Good Standing
Becoming debt-free takes time and hard work, but you’re a business owner and a mom, so you can easily tackle this obstacle. Prioritize your spending, cut costs where you can, stick to a budget and consider restructuring your debt to pay off your bills. Pretty soon, the dark cloud of due dates and unwelcome phone calls will be a thing of the past.