Dealing With Collection Agencies

I'm a single mom of twin girls. I just graduated from nursing school and work full-time making pretty good money. But I have credit card debt that is now in collections. My goal is to be out of bad debt by the time my girls are 4, which is about 1.5 years. Do you have any advice on how to do this. My bad debt is about $10,000.

I can't tell how much you have to devote to debt every month, after your expenses, but the more, the better. Here's where you can take a big chunk out of this debt—by settling the collections. Here's the thing: Settling debt is very, very bad for your credit record but if you're already in collections, your credit has taken a very bad hit already.

Also, once debt has gone into collections, it's no longer as big as it was and here's why: Collection agencies buy debt from credit card companies, for example, for pennies on the dollar, anywhere from 3 cents a dollar to 12 cents. So, you have a ton of bargaining room. Call your collection agencies, ask them pleasantly to settle for a lesser amount, knowing that for every $100 you owe, they paid $10 or so, you can start pretty low, say a third of the total amount owed.

Here's the only drawback: They may ask for the full, agreed-upon amount right away. If you can't manage that, work on a payment program that makes sense. You can shave thousands of dollars off of what you owe and get out of debt sooner. For some free calculators to see just how quickly you can get out of debt, head to Dinkytown.net.

Good luck!

Read more of Carmen Wong Ulrich's financial advice. GO!