There are several options you can take to handle credit issues. The different options will affect you differently and cost different amounts of money for you to resolve. It is important to know your options before you handle credit issues so you can make the best choice for your situation.

Stop Harassment by Debt Collectors

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The only way to stop harassment from debtors is to address the debt.

  • You can pay the debt. Whether a family member can help or you make enough money to pay it yourself. Once you have paid debt you can start to take steps to clean up your credit report
  • Negotiate with creditors to set up payment plans. Negotiate with creditors yourself or you can get credit counseling
  • Decide if bankruptcy is the best option for you
  • Doing nothing will not stop debt collection, unless the creditor violates the Fair Debt Collection Practices Act

Pay the Debt

Paying the debt is quickest way to handle credit issues if you have the money. Decide your goal for paying the debt. Are you trying to improve your credit score or are you trying to stop annoying calls? The difference in answers may determine how you proceed with clearing up the accounts. If you need assistance creating a budget and/or debt management techniques then read this article.

The age of the account may also be a factor in your decision to pay debt. If the account has recently gone into collections it has a greater affect on your credit report. The older an account gets the less it will affect your credit score.

Regardless of if the debt gets deleted from your credit report or the statute of limitations passes you will always owe the money. It’s possible if you have charged off accounts the creditor will have a record of it. If you try to do business with that creditor the old debt could come back to haunt you.

The debt will not get put back on your report, you are simply denied credit. A creditor notorious for this is American Express. Even if your credit report is clear, American Express knows your credit history with them based on your social security.

Paying to Improve Credit Profile

When paying off accounts follows these basic steps:

  • Before you pay anything, make sure the creditor has documentation the debt is valid and you owe the money.
  • When you plan to pay debt to improve your credit score you paying less than you owe is not a good idea.
  • Always talk to the creditor BEFORE making a payment. This will give you the opportunity to ask about how they will report the debt after you pay.

How the payment affects your credit largely depends on how the creditor reports the status of the debt. If possible, you want the creditor to agree to show the account status as “paid as agree”. This is less likely to happen if you don’t pay the entire balance. Either way, ask for the account to show the most positive status possible.

Minor Delinquencies

If you only have one or two delinquencies on your credit report for a particular creditor you can ask for a “good faith adjustment”. You can request this by calling or writing and simply asking for the adjustment. Many creditors will remove the delinquency from your account.

You can try asking the creditor for forgiveness of delinquent accounts if you are pay an account current as well. Paying charge offs and liens that are older than 24 months won’t increase your score. Make sure to pay off the most recent credit delinquencies.

Collection Accounts

Paying off collection accounts will usually cause your credit score to drop. When you make a payment, the last activity on the negative account is now recent. The more recent the activity, the more it will weigh on your credit score. Even though you pay of the account, it is still a recent negative mark on your credit file.

You can try to ask the creditor to erase the account from your credit profile when you pay it. If they agree, make sure you get this as part of the agreement in writing. If an account has been sold to a collection agency, you might have an easier time asking them to remove the negative account. Again, be sure you ask for their part of the agreement in writing.

Paying to Stop Debt Collector Calls

If you want to stop creditor’s collections efforts you can settle for amount less than what you owe. However, when you do this you run into a couple risks:

  • Paying for the less than the amount you owe is more negative than paying an account off completely
  • If you settle a debt, you are subject to receiving a 1099-C, Cancellation of Debt form. When you file your taxes this counts as “other income” and you will have to pay taxes on the amount cancelled. There are exceptions to having to pay taxes on the amount in a 1099-C. To find out more read the IRS Publication 4681.

After You Pay the Debt

Regardless of if you pay the debt in full or settle for amount that’s less than what you owe always keep documentation. Have this on hand in case another creditor contacts you in the future for the same debt.

  • Be sure to get a copy of the contract that shows the debt and the sale of the debt from the last owner to the next
  • Keep a copy of your cancel check or statement where you pay the balance
  • A copy of any documents stating how the account will show after pay off

If you cannot get the creditor to agree anything, the late payments will still affect your credit for the next 7 years. But, the older the debt gets the less it will affect your score.

Make sure to check your credit before and after you pay the debt. While paying down debt you should consider cleaning up any inaccuracies on your report. You will also want to make sure whatever your creditor agrees to is reportedly correctly. This is especially true if creditor agrees to report the account as “paid as agreed” or erase the debt entirely.  Be ready to dispute any items that are not correct, read more about that here.

Get Credit Counseling


Credit counseling is one step away from filing for Chapter 13 bankruptcy. However, credit counseling does not show up on your credit like a bankruptcy. A good credit counseling organization will create a debt management plan. The plan involves the agency negotiating lower interest rates and/or reduced payments with creditors. Credit counseling will stop any collection efforts, but the creditors are under no obligation to comply with any deal you want to make. Even if they do comply, they can terminate the deal for one missed payment.

The benefit of credit counseling is having professional help. If you decide to file for bankruptcy, you will need to have proof of credit counseling. However, if the counselors can help you without you having to file for bankruptcy this is a great option.

When you start repaying debt through the service a note on your account showing you are using debt counseling might appear. The note itself will likely have little impact on your score, but the way your creditors report your account status might. If your account shows “paid as agreed” (this means paid in full) this will help your credit score. However, if the account shows “settled”, this could have negative impact on your credit.

If the counselors do not mention if their assistance will have any effect on your credit, ask them to provide clarification. The individual counselors might provide information to the contrary. At the very least, they will attempt to keep your credit in the best shape possible while resolving different situations.

Consumer Advocates and Credit Repair Agencies

National Association of Consumer Advocates (NACA)

The National Association of Consumer Advocates (NACA) is a nonprofit group of more than 1,500 attorneys committed to representing consumers. Their primary focus is the protection and representation of consumers “victimized by fraudulent, abusive, and predatory business practices.”

The attorneys within this network will educate you on rights to help you overcome some of the complex credit issues, among other things. NACA’s nationwide database of consumer law attorneys are very familiar with FCRA laws and are able to help you navigate the process.

NACA can help consumers in a number of issue areas which include:

You can find a link to their site here. There is a lot of information you will find helpful. You can try contacting NACA before looking at other credit repair services.

Alternate Debt Management –

If you need assistance outside of NACA, you can also try using debt management service. is another service that will help with all aspects of credit and debt management. They offer services such as:

  • Credit Card Debt Help
  • Student Loan Debt Help
  • Getting a Loan
  • IRS & State Tax Debt Help
  • Filing for Bankruptcy
  • Ending Collector Harassment
  • Personal Financial Management
  • Credit Correction
  • Credit Monitoring
  • Identity Theft Protection

Think about the cost benefit analysis of spending the time trying to do this yourself or paying someone to take care of it as quickly as possible. Credit counseling and debt management firms have expertise in dealing with creditor. It wouldn’t hurt to at least call and talk to someone and see if the program makes sense to you.

Decide if Bankruptcy is Right for You


Remember that filing bankruptcy not only means it’s harder to find a loan, it can also be difficult to get a job. When employers check for credit they are looking for things like bankruptcy and foreclosures. Just because you file for bankruptcy does not mean an employer will not hire you. But, it is a strike against you which could hurt your chances, especially if you are applying for a competitive job.

File for Bankruptcy (Chapter 7 or Chapter 13)

Chapter 7 bankruptcy discharges all debt while Chapter 13 sets up a payment plan. You must qualify for a Chapter 7 bankruptcy. There is a “means test” performed and if your income is equal to or less than the median income for the state, you qualify for Chapter 7. But, if you have income to pay off some of the balance you will have to file Chapter 13.  Bankruptcy will result in lawyer and court fees, however if used appropriately it is an effective method for handling credit issues. Read more about bankruptcy here.

Do Nothing

If you are content with doing nothing, you might not be reading about how repair your credit or buy a home. However, there are times when doing nothing is a valid method to handle credit issues. Ethically, this is the worst option and there could be long term ramifications that will haunt you should you ever want to make a large financial purchase that requires credit.

If you do nothing you might be able to avoid the legal fees of fighting the creditor. Doing nothing is not advisable unless you are considered “judgment proof”. Being judgment proof doesn’t mean a creditor won’t get a judgment and try to come after you. There is just little they can do to enforce the judgment on you.

Fair Debt Collection Practices Act

You can attempt to stop excessive debt collector harassment under the Fair Debt Collections Practices Act. The act prevents creditors from violating/protects consumer from the following actions:

Attempt to Locate

While attempting to locate you, the creditor or debt collector must:

  • Identify himself, state that he is confirming or correcting location information concerning the consumer.  The debt collector must not state that such consumer owes any debt
  • Not communicate with any person more than once unless requested to by that person. However, if the debt collector reasonably believes the person gave erroneous /incomplete information and can provide correct information they can contact the person again
  • Attempt to communicate by post card
  • Not use any language or symbol on any envelope that indicates that the debt collector is in the debt collection business or relates to the collection of a debt
  • After the debt collector knows the consumer has attorney  representation,  they must contact only the attorney. If they attorney fails to respond within a reasonable period of time they can contact you again


When communicating with you, the creditor or debt collector:

  • Cannot communicate with the consumer without the prior consent given directly to the you
  • Cannot contact the consumer at any unusual time or place or a time or place known or which is known as inconvenient to the consumer
  • A debt collector shall assume a convenient time for communicating with a consumer is after 8 AM and before 9 PM, local time to the consumer

Ceasing Communication

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If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication. The debt collector shall not communicate further except to advise:

  • Further collections efforts are being terminated
  • Specified remedies are being invoked [i.e. sue]
  • The creditor intends to invoke a specified remedy [i.e. sue]. If such notice from the consumer is made by mail, notification shall be complete upon receipt

False or Misleading Representations and Unfair Practices

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. The debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt.

Know What to Expect if a Creditor Sues You

When you have accounts that go unpaid the creditor(s) can go far beyond making annoying phone calls and sending threatening letters. If the creditor decides to, they can take legal action against you. First, you will get served with a summons and the complaint against. The summons tells you when and where to appear in court to answer to the complaint against you. At this point you have two options;

  1. Go to court and answer the complaint or
  2. Ignore the situation

If you choose option one (1) and go to court, you definitely should seek legal advice. Do not take any steps you read on the internet for face value. Lawyers will know how to best navigate the legal system and minimize the “trouble” you are in. You will not go to jail because you cannot pay your debt on the day court. Don’t let that prevent you from showing up.

Choosing option two (2), ignoring the situation is the worst thing you can do. This will result in a default judgment against you, also known as an automatic win for the creditor. Once the creditor gets the judgment against you they can take further action to collect on the judgment.  This includes wage garnishment and/or attaching a lien to real (such as house) or personal (such as vehicles) property you own.

Judgments are not pretty. If you are in danger of having a judgment placed on your property filing for bankruptcy might dismiss it. If the creditor already has a judgment against you then filing for bankruptcy can end further collection attempts. Federal debt cannot be dismissed by bankruptcy.

If you are judgment proof then even if a creditor gets the automatic win there will be little they can do to collect. However, you may have to prepare yourself if the credit tries to move forward with garnishments and/or bank levies.

Judgment Proof

You can consider yourself judgement proof if you:

  • Have no assets such money in a bank account or real estate
  • Are not working or have a very low-paying job
  • Do not own any property that can be seized, such as a car
  • Any other source of income is exempt from seizure by judgment creditors. If you have a bank account with money from any of sources, then your bank account will have to be released if the credit manages to get a levy against it. These sources include:
    • Social Security benefits
    • Supplemental Security Income benefits
    • Public assistance benefits
    • Unemployment benefits
    • Veteran’s benefits
    • Child support, and
    • Federal employee and civil service retirement benefits

Although you are judgment proof it does not mean creditors will not try to collect. Creditors can still issue a levy on your account in an attempt to collect. If you have money in bank account it becomes frozen or removed from the account. The burden of proving of the money in the account is from a protected will fall on you. However, during this time you will not have access to the funds.

If you have equity in real estate this can also become a target for a creditor to attach a judgment to. Homestead property is generally exempt from this from this action. If the property is your primary dwelling you can file for homestead exemption through the county in which you reside. If you happen to have property that is not exempt from judgment liens then the creditor can go after this property.

Just remember, if you intend to finance anything, having a judgment will almost always prevent it. Also, if your financial situation improves you are no longer judgment proof. Staying judgment proof just to avoid paying a debt is not likely a place you want to be.