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Debt’s Not a Game, But Strategy Will Help You Beat It

April 4, 2011 by · Leave a Comment 

If you’re in serious debt, it’s time to reevaluate your necessities, stick to a budget, and create a system to pay down what you owe.

Ok, you have debt, and yes, the situation definitely stinks, but there’s no benefit in getting hung up on ifs or getting frustrated. Doing either is simply not productive and only serves as a distraction that makes debt more difficult to deal with, both mentally and practically. Therefore, you should shift your focus to what you can control, what you can do to pull yourself free from debt’s grasp. After all, many people before you have experienced credit card debt, and many have also put it behind them. So, instead of asking yourself why, ask what needs to be done to deal an insurmountable blow to debt.

Sometimes, eradicating debt is as simple as reevaluating your lifestyle, sticking to a budget and systematically paying down what you owe. However, serious or defaulted debt is somewhat more difficult to manage. So what do you do then if you find yourself in such a situation?

Debt’s Statute of Limitations

Well, your primary concern should be minimizing your chances of being sued. Creditors and debt collectors commonly hint at legal recourses, but whether or not they will actually be able to sue you successfully is another story entirely. Unbeknownst to many consumers, debt has a statute of limitations, which means that there is effectively a time limit to a debt collector’s ability to legally force you to pay amounts owed. The statute of limitations for debt varies between three and 15 years depending on the state, and before it expires, lawsuits are fair game. Afterward, however, while you can still be sued, any lawsuit will be dismissed from court as long as you make it known that your debt is older than the statute of limitations, or “time-barred.”

Now, this is where things get tricky. When does the statute of limitations begin, and when does it end? Interestingly, it sort of depends. The statute of limitations clock begins to tick down at the time of your last payment, but as a result, it also resets each time you make a payment. This presents a confusing dilemma; should you pay or not?

Make a Deal

Hopefully, you won’t have to choose. The best way to put defaulted debt behind you and the best way to avoid a lawsuit are actually one and the same. Credit card companies and debt collection organizations, believe it or not, have the same underlying interest as you: to resolve your debt. Therefore, you should call whoever owns your debt and try to work out a mutually beneficial deal to bring about its conclusion. It’s very likely that your creditor will be receptive to such a plan and will even make concessions such as forgiving some of what you owe or lowering your monthly payments to bring it about.

The most commonly-reached deals between an indebted consumer and his or her creditor are debt settlement and debt management agreements. Debt settlement is where your creditor agrees to reduce the amount you owe in return for you paying off this reduced amount in one lump-sum payment. Debt management involves establishing a payment plan that, as long as you make your required minimum monthly payments, will result in you being debt-free by a pre-established date. It is of the utmost importance that you stick to whatever agreement you reach however, because if you don’t you’re not only back at square one but you have also reset your statute of limitations.

Wait It Out

If you can’t come to an affordable agreement with your creditor, you do have to make that aforementioned tough decision, to pay or not to pay. Interestingly, it’s not so tough anymore. The fact that you could not come to an agreement indicates two things: you cannot afford whatever payments will satisfy your creditor and your creditor will not be satisfied by whatever you can pay. Therefore, paying what you can manage won’t help but will reset the statute of limitations. As a result, you should hold onto your money and hope that the statute of limitations runs out without a lawsuit being brought against you.

Federal Education Loans: The Rules Don’t Apply

Unfortunately for anyone with a federal student loan, there is no waiting out your debt. Statutes of limitations are not applicable to such loans because they are funded by taxpayers, who—like it or not—aren’t inclined to just let old debt slide. Therefore, the above rules don’t apply, and no matter how long it takes, you’re going to have to pay off what you owe one way or another. Still, if you’re having trouble making your payments, I would encourage you to call the U.S. Department of Education’s Default Resolution Group to see what kind of options you have.

Final Thoughts

Debt is stressful, but you must try to approach it as logically and objectively as possible. Try as best you can to deal with whoever owns your debt with tact and patience. After all, striking a deal with them is your best course of action, and such a deal is more likely if they like you. At the same time, you mustn’t get pushed around. Know your rights when it comes to debt collectors and be prepared to report them if they break rules against excessively contacting you or threatening a lawsuit when one is not imminent. Ultimately, understanding the law, working with your creditors, exploring all options available to you, and approaching your payments strategically will make getting out of debt a heck of a lot easier.

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