How To Deal With Debt Collectors
It can be annoying and scary to be pestered by debt collectors, but there are steps you can take to gain some control over the process. A federal law known as the Fair Debt Collections Practices Act governs how debt collectors interact with you.
Aside from your ability to request that a debt collector stop calling or emailing you, here are some of your other rights:
- Under the Fair Debt Collections Practices Act, a debt collector can’t be abusive, deceptive or unfair when it’s trying to collect money from you. For example, a representative of a debt collection agency isn’t allowed to hurl four-letter words at you over the phone or to threaten jail time if you fail to pay up.
- The law prohibits a debt collector from calling you before 8 a.m. or after 9 p.m. You can give your permission for a debt collector to contact you outside those hours, though.
- Debt collectors are disallowed from reaching out to you at your workplace if your employer doesn’t permit you to take phone calls.
- If you believe a debt collector is breaking the law, file a complaint with the federal Consumer Financial Protection Bureau or contact your state’s consumer protection office.
Negotiate A Debt Settlement
Your debt collector may be willing to let you settle your debt for a lower amount, in exchange for a lump sum payment. Collection agencies often see this as a win-win: You save money and the company still gets a portion of what you owe.
You can negotiate a debt settlement on your own, or with a debt settlement company. Either way, make sure to get an agreement in writing before you start making payments.
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How To Handle Debt Collectors
To best know how to deal with debt collectors, its important that you understand your rights. There are consumer protection laws established to protect you against debt collector harassment. The Fair Debt Collection Practices Act helps protect consumers. Many states also have their own additional laws. Some of your rights include:
- If you dont want to be contacted at work and inform your debt collector of this via written letter, they must stop.
- Collectors can only call between 8am and 9pm and cant call multiple times a day.
- Collectors cant threaten or harass you.
If a collector violates any laws, you can report them to your state attorney generals office, as well as the Federal Trade Commission and the Consumer Financial Protection Bureau.
Can I Pay My Original Creditor Instead Of A Collection Agency
To know how to negotiate a settlement of a debt in collection, its important to understand the relationship between the creditor and the collection agency.
Sometimes, the creditor keeps the debt on its books and hires the collection agency to recover it. In this case, it makes sense to repay the original creditor, since it still owns the debt. But this depends on the creditors policies.
For example, you may be able to reach a quick settlement with the creditor by offering a lump sum to repay most of the loan.
However, if you instead offer to repay in installments, the creditor may insist you establish a repayment plan with the collection agency. Perhaps after a few months of payments, the creditor will re-establish your credit and/or remove the delinquent payment entry from your credit reports.
Frequently, the original creditor sells the debt to the collection agency in return for partial payment. In this case, youll have to negotiate with the collection agency as far as the original creditor is concerned, youre dead meat.
However, as outlined earlier, if you can arrange a settlement with the agency, you may be able to get the entries for the collection and the original default expunged.
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Avoid Debt Collection Scams
It makes sense. When youre in debt, anything that looks like a solution to getting out of debt sounds good. But unless your plan includes getting all the facts in order about your debt and obliterating the debt, youre headed for trouble.
You may be in debt, but youre not desperate. Sleazy debt collectors are a dime a dozen and so are their ugly counterparts: credit report clean up companies and companies that promise to settle your debts for you. Dont ever pay someone to provide these services. Theyre scams designed to squeeze even more money out of hurting people.
If you want to know the best next step for your situation, book a free call with a Financial Coach and get advice we stand behind.
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When Does Debt Get Sent To Collection
When you fall behind 30 days on a bill, your account might initially be turned over to an in-house collection department. In other words, the debt is still owned by the same company, and you might get calls from them attempting to work out a payment.
If you fall three-to-six months behind, the debt will likely be sold to a third-party debt collection agency. When this happens, the results can be more stressful and overwhelming. Be sure to follow the steps above if you want to end debt collector harassment, stop collection calls and try to improve your credit.
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Develop And Follow A Budget
One of the best ways to take back control of your financial situation is to develop a budget. Write down your income and expenses so you have a sense of your cash flow each month.
Start with fixed expenses, such as your rent or mortgage, utilities and car payment. Then create categories for fluctuating expenses, such as entertainment and clothing.
If you owe various loans, you can also determine how much you can afford to pay each month and which debts to prioritize.
Handle Your Collections Accounts Today
The sooner you get on the path of repaying your collections accounts, the sooner youll see improvements to your credit score. And learning how to pay a bill in collections is a big part of that process. Yes, not all lenders use the new FICO 9 model that ignores paid-off collections but the rollout is in progress. Soon, itll be the preferred scoring model.
Getting ahead of your collections accounts now means youre better prepared for when the FICO 9 model is fully adopted.
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Try These Tips For Dealing With Debt Collectors
Being contacted by a debt collector can be stressful. To help you navigate communications, the Federal Trade Commission recommends following these tips when dealing with a debt collector:
- Keep a pen and paper near the phone when a debt collector calls, so you can take notes.
- Write down the debt collectors name, company, address and phone number, plus the time and date you talked.
- Ask for a written validation notice. Dont make any payments to the debt collector until you get the notice and confirm the debt is yours.
Federal law prohibits debt collectors from being abusive, unfair or deceptive under the Fair Debt Collection Practices Act . If a debt collector is harassing you, threatening you or trying to collect fees or interest on top of what you owe, for example, then they are breaking the law and you should hang up and contact the FTC.
Confirm That The Debt Is Yours
Dont make any payments to a collection agency until you confirm that the debt belongs to you. Check your records to ensure that the stated balance is correct, and contact your original debtor to make sure that youre working with the right collection agency.
Mistakes happen, so confirming that the debt is your responsibility is a necessary first step. Does it seem like the debt isnt yours? Send a dispute letter to the debt collector within 30 days of them contacting you. Once a debt collector receives a dispute letter, they must stop trying to collect from you until they can send a written confirmation of the debt, like the original bill.
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If You Find An Error In The Report Dispute The Collection
Errors on your credit report can be removed or corrected. In most cases, you have to initiate this process. For incorrect information, you can file a dispute with the credit bureaus to have the accounts investigated. Your dispute letter should include:
- Your contact information: Complete name, address, and telephone number
- A clear list of each mistake with account numbers
- An explanation as to why and how the information is incorrect
- An explicit request for the information to be removed or corrected
- A copy of your credit report with the erroneous items highlighted
- Supporting documentation proving how the information should be reported
There are many ways you can contact and dispute items on your credit report. The Consumer Protection Bureaus guide on disputing credit report errors contains the following directory of each the credit reporting agency and where to send disputes:
According to the Fair Credit Reporting Act , credit reporting agencies and furnishers must investigate and respond to disputes within 30, and sometimes up to 45, days of receiving your . If the information is found to be correct, then it will remain on your report. Otherwise, it will be removed or updated.
When Do Debt Collection Agencies Get Involved
When a borrower gets far behind in their debt payments, the lender usually sends their account to the collections department. This typically doesnât happen until the borrower is at least three payments behind, and sometimes even more than that. But for most lenders, thereâs a point when it becomes more profitable to simply write the debt off and turn the account over to a collection agency than to keep trying to get the money back.
If your lender has been trying to reach you because youâre delinquent in your payments, itâs wise to talk to them to see whether you can work out an arrangement instead of letting your account go to collections. In all likelihood, your lender will eventually sell your debt to either a collection agency or a company that buys debts. This will create a blemish on your credit report and lower your FICO or credit score. This all happens in addition to any late payments that will have already appeared on your credit report.
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What Is Debt Collection
Debt collection is an industry that collects unpaid debt. If you fall several months behind on a bill, your debt might be sold to a debt collection agency, which means the original company no longer owns your debt.
Debt collectors buy debt wholesale, meaning they usually buy overdue accounts for .20 cents on the dollar. Then they make efforts to get payments from the customer. They might do this in a few ways:
- Making phone calls about the debt
- Sending letters
- Filing a lawsuit
If a debt collector wins a lawsuit against you, they may be allowed to garnish your wages, however, they cant file a lawsuit after the statute of limitations has passed.
Use Caution When It Comes To Debt Relief Services
If youre feeling overwhelmed by your financial situation, you might want to seek outside help from a debt relief service. While there are legitimate services that can help you, there are also plenty of debt elimination scams. Make sure to do your due diligence before working with a company so you dont end up high and dry.
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Consider The Snowball Method Of Paying Off Debt
This involves starting with your smallest balance first, paying that off and then rolling that same payment towards the next smallest balance as you work your way up to the largest balance. This method can help you build momentum as each balance is paid off. Understand the pros and cons of this debt pay down strategy by reviewing the Snowball versus Avalanche methods of paying down debt.
Does The Open Date Of A Collection Account Determine When It’s Removed
It sometimes takes a year or more between an account’s charge-off and its sale to a collection agency, and collection agencies that fail to collect their debts sometimes resell them to still other agencies. That means multiple collection account entriesall related to the same unpaid debtmay appear on your credit reports.
While that’s not great news, you need not worry that each new entry has its own seven-year countdown to expiration. Any collection entries related to the same original debt will disappear from your credit report seven years from the date of the first missed payment that led up to the charge-off.
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How To Improve Your Credit When You Have Collections
If you have legitimate collection accounts on your credit reports, there’s nothing you can do to get them removed before their expiration dates. But you can take steps immediately to start rebuilding your credit and reversing the damage those collections have done to your credit score:
When it comes to accurate collection entries on your credit reports, there’s nothing you can do to get rid of them except wait for their inevitable expiration date. So don’t fret over past mistakes instead, try to avoid future missteps, improve your credit habits and rebuild your credit in the process.
When To Not Pay A Debt Collection Agency
If your debt has passed into collections, it’ll put a hefty ding in your credit score. But paying it off may not fix that. Paying a debt collection agency may do more harm than good to your credit score.
That’s because actually paying your debt will lower your credit score. You heard that right. You can get punished for trying to pay what you owe. Luckily, there’s a loophole.
Your credit report isn’t a permanent record. Events that affect your credit scorefrom debt collections to bankruptcydisappear from your credit report after seven years.
As a result, if your debt has been in collections for nearly seven years, you may want to avoid paying it. Once you pass that seven-year mark, your credit report will be clear.
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Try To Work Out A Deal
When debt is in collections, the creditor’s or debt collector’s primary goal is to get all or some of the money that it’s owed. Therefore, you might attempt to negotiate a way to wipe out the debt, such as by making a lump-sum payment or by committing to a long-term payment plan.
Be sure to figure out how much you can afford to pay, either all at once or over time, before you make a settlement offer. Then, approach the debt collector with your idea. For instance, you might propose paying two-thirds of the $4,000 you still owe on a credit card or paying off your remaining $2,000 balance on a personal loan over the course of 24 months.
Before you hand over a single penny, make sure you’re clear about who to pay. If the original creditor still owns the debt, you’ll send your money to them. If the original creditor turned over your debt to an outside company, you’ll pay that company.
What To Do If Debt In Collections Goes To Court
Here’s what not to do: Nothing. If you dont go to court, the judge will find you at fault. If that happens, anything can happen. You could see your wages garnished, a lien placed against your property and your bank account frozen.
You may want to contact a lawyer for advice, especially if you plan on going to court. You will probably find that if you pick up the phone and call the debt collector, you can set up a monthly payment plan or negotiate a settlement. If the debt truly is not yours, it’s best to contact an attorney and go from there.
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