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Negotiating Debt, Managing Your Finances and Gaining Financial Security

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Debt can be crushing. It can cause people to delay marriages, purchasing of a home and even decline or delay needed medical treatment. In fact, one of the leading causes of bankruptcy is medical debt. Many people are unaware that they can negotiate their debt with many creditors, It pays to be aware of the options you may have. I’m going to review some of these negotiation options with you. This list is not exhaustive. If you have bills that you’re having a hard time managing, don’t be afraid to ask your creditor. Understand how debt default can affect your credit and can lead to legal action including the seizure of property. Don’t let this happen to you.

Tax Debt

If you have outstanding debt with the IRS, talk to them. It’s important to understand that interest and penalties will continue to accrue on any outstanding balances. The sooner you speak to them the better off you’ll be. You may not be able to completely eliminate your debt, but you may be able to get it reduced or set up payment arrangements that will make it more manageable. Most creditors, from the mortgage company to hospitals to loan companies are willing to discuss your situation. For many people who delayed or did not file a 2021 tax return, penalties can accrue at a 5% rate of the unpaid taxes for every month until reaching a 25% cap. Additionally, interest will compound daily at a current rate of 7%. This interest rate may go higher if the Federal Reserve raises rates. There is also a late filing payment penalty of .05% of the unpaid taxes, an amount that accrues monthly. You can see how your outstanding debt can increase significantly. Unpaid taxes can lead to garnishment of wages, money can be taken from checking and savings accounts and the IRS can seize real estate and vehicles.  

If you owe delinquent taxes, contact the IRS and set up a payment plan. If you don’t have the income or resources to pay taxes, taxpayers can apply for an “offer in compromise,” which can reduce the overall tax liability. Another option is to ask the IRS to report the debt as currently not collectable. This will temporarily suspend certain collection actions such as seizure of property. This action does not erase debt and it will also continue to accrue interest. I would caution taxpayers to be aware of scammers that say they offer assistance with the IRS. Do your due diligence 

The collection process and penalties assessed vary greatly depending on circumstances. Many people are unaware that if you live in a federally declared disaster area or are a member of the military serving in a combat zone, exceptions can be made. 

Mortgage Debt

Many people remember the many homeowners that found themselves upside down on their mortgages in 2008-2009. Consequently, many lost their homes, 

According to the New York Federal Reserve Board, in the last quarter, 0.57% of all mortgages were seriously delinquent. There is a concern that with the rising interest rates along with the higher house payments, delinquency levels may rise in the coming years. Homeowners who are significantly behind in their mortgage payments should contact their mortgage servicer immediately. Describe your situation and how you plan to repay what is owed. Missing mortgage payments will hurt your credit score, so consider asking your loan services for a loan forbearance, which will pause or reduce your mortgage payments. The missed payments which are due at the end of the term will include interest during the forbearance period. You can also ask for a payment plan arrangement. Also, some portage servicers will offer a payment deferment in which the missed payments are added to the end of the home loan. The homeowner must be aware that if the mortgage debt continues to accrue, the loan servicer may push the homeowner to sell the property. 

Credit-card Debt

In an environment where interest rates are rising, credit card holders can find themselves in trouble when their purchases and interest charges snowball to the point where they can’t make the minimum payments. It may pay to seek help from the National Foundation for Credit Counseling. It is a collection of non-profit member agencies that help consumers develop a plan to both reduce their living expenses and pay outstanding debts. The counselors work with your credit card company to make the payments more affordable. The payments are made to the agency which disperses the money to the creditors. The credit card companies may vary in their assistance. Consumers will need to provide documentation of the extenuating circumstances that led to the debt. You can also reach the credit card company yourself and save money on fees and negotiate with them directly.

Student-Loan Debt

Many older people are finding that they’re holding student debt for adult children. Also, student loan holders find themselves in limbo waiting for the supreme court to rule on the legality of President Biden’s plan to forgive up to $10,000 per person in federal loans and up to $20,000 in federal loans to borrowers who also received Pell Grants. Borrowers can assess whether their monthly payments are still manageable once the pause ends. If not, contact the loan services and inquire about deferment and/or forbearance options, as well as other repayment plans. 

Medical Debt

Almost a quarter of all US adults say they have past due medical bills including bills they cannot afford to pay, according to the Kaiser Family Foundation. There are options to help manage the burden of medical debt. One of the first things a person can do is prepare for the cost of a procedure. Ask about the cost as soon as possible. Also make sure you understand your insurance and what it will and will not pay. Thirdly, make sure your medical bills are accurate. Upwards of 80% of medical bills are incorrect. Don’t pay a bill unless you have verified the itemized expenses with the Evidence of Benefit statement. If there are errors you can file an appeal. Many hospitals have charitable programs to help patients cover medical bills. They can also help you establish a payment plan to pay your outstanding bills. You can ask if the bill can be reduced to an amount you can pay. It doesn’t hurt to ask. Be prepared to provide documentation, such as proof of income, insurance, disability and even your proximity to the facility if travel expenses are significant.  

Patients can apply for grants through the Patient Advocate Foundation and other non-profit organizations. Funding comes mostly from private donations and health-related nonprofits devoted to specific ailments, such as the Leukemia and Lymphoma Foundation. 

Some healthcare providers offer medical credit cards to their clients. They come with no or low interest introductory rates that will later reset to a high rate. Consumers should be aware that these rates may be higher than that of regular credit card rates. It pays to take this into consideration before signing on the dotted line.  

 

Don’t be afraid to ask for help with any of your creditors. Getting control of your finances will reduce financial stress and allow you to focus on more important things in life.