Personal Finance

Do’s and Dont’s for Handling Debt Collection Calls

past-due-bill-stampGetting into debt is no picnic. The more that mounts up, the tougher it can be to get out from under it. Before long your credit score starts to take a hit and those collection agency calls start to come in.

Once a bill goes unpaid for an extended period of time, it can become a long-standing problem unless you deal with it. It will impact your credit, especially if it’s turned over to a collection agency.  When that happens, you better believe the debt collectors will do everything within their power to get you to settle that debt. They have a lot of tools and methods at their disposal to track you down in order to contact you about paying off what you owe.

As a consumer, you have rights and protections that prevent debt collectors from taking certain actions.  When those debt collection calls start coming in you’ll need to know how to handle them. It begins with knowing what your rights are under the law as well as the proper strategies for dealing with collectors when they start to contact you about settling your outstanding past due bills.

The Road to Debt Collections

If you have an outstanding balance or unpaid bill on any account, then that debt can end up with a debt collection agency.  This is the case whether it’s a medical bill, a utility bill, or some other situation where you owe a bank or a business any amount of money.

The process typically begins when you let a bill go unpaid for 30 days.  At this point it will likely be considered delinquent and reported as such to the major credit bureaus. While most creditors will give you that 30 days before they report it to the bureaus, you may still incur late fees or other penalties that are applicable as per the standard practices and policies of the creditor.

Once that 30 days passes and you still haven’t paid what is owed, then the bill can be turned over to a collection agency. When that happens, it means the original creditor has elected to sell the debt to a third-party debt collection agency in order to get at least part of the money that you owe.  This way they can close the transaction and move on.

Now the collection agency owns your debt and will try to collect on the outstanding bill. They have purchased it for pennies on the dollar and you owe the agency, not your original creditor. That agency is going to want that money now that they have purchased the right to go after to you to collect it.

You will no longer receive bills from the original creditor but rather collection notices from the agency who bought the debt.  Make no mistake about it, they will pursue you persistently until they retrieve those funds.

Even worse, now that your bill has entered collections it will be reflected on your credit report as an unpaid debt and could remain on there for up to seven years. Future potential creditors who are making a determination as to whether or not they should extend you any credit or approve you for an apartment, a loan, even a cell phone account will be able to see that unpaid bill on the report and it could adversely affect their decision.

In all, this unpaid bill could make it more expensive for you to get the things you want as you will likely pay higher interest rates should you apply for another line of credit. That’s if you’re approved at all.

Purchasing Debt

Sounds strange, doesn’t it? Companies that buy debt from creditors who no longer choose to chase down parties who owe them money.

Once a creditor decides to relent, it will sell that delinquent account to such a company by packaging a number of accounts together and selling them off en masse. The agencies will then select the packages they wish to purchase based on a variety of factors.

Lenders typically package debts together based upon the age of the debt.  In general, newer accounts are often sold off in a package deal just as older accounts are typically bundled together in similar fashion. The most prevalent distinction between them is that the newer accounts haven’t had any collectors work on them yet while the older accounts have already been pursued by previous collectors who couldn’t close the accounts.

The agencies will then place bids on these delinquent account packages at a fraction of what debtors owe, usually at a few cents for every dollar overdue. The older the account, the more companies that have attempted to collect, the cheaper it will be to purchase because there’s a smaller chance of collecting on the debt. The newer accounts will attract a higher price because no one has worked on them yet and the agencies feel they have a better chance of being prepaid.

The collection agencies will buy all types of debt which can also have an effect on the price they will need to pay. Mortgage debt or other bank debts will command the highest bids whereas bills from a cell phone company or the gas company are often the cheapest to purchase. Certain agencies might work on specific types of accounts based on the amount owed and the age of the account.

The Debt Collectors

Since the collection agency now owns your account, they get to keep the entirety of the money that is owed on it. Having just paid pennies on the dollar for it, they stand to make a pretty large profit should they collect.

Let’s say you owe $500 on an unpaid account and the agency purchased it for 5 cents on the dollar, that adds up to only $25. If they collect on your account, they will make $475 on the deal. So you can be sure they’re going to come after that profit.  Debt collectors only make money if they are able to collect what is owed which means they will take every opportunity to get as much as possible.

The methods they use are wide-ranging and varied, but they are also bound to certain by-laws and regulations prohibiting harassment. Debt collection agencies will send out letters and contact delinquent parties through phone calls in attempt to discuss the debt and urge them to pay it off in full. If a debt collector is unable to reach the delinquent party through the contact information that they have on file from the creditor, then the agency can start down the path of finding alternative ways in which to contact you about settling your outstanding balance.

Collection agents may perform an Internet or database search, hire a private investigator, checking into other accounts and assets you may own, or they may even try to reach you at your place of business in order to get in touch. The debt collector wants to talk to you and will do the requisite research required to determine if you are able to pay them the money you owe.

As mentioned before, the account could be reported to one or all three credit bureaus as a way to motivate you to take care of the delinquent amount in order to avoid a badly damaged credit score. If the delinquent amount goes on your credit report, then it will remain there until it is paid or the seven years passes for it to be expunged.

Should you pay it off in full, the account will be reflected as such and removed from your credit report. Or, at least that’s what is supposed to happen.  Unfortunately, there have been consumers who have had issues with an account being paid off yet the bureaus neglect to remove it for whatever reason, usually human error. This is why it’s best not to let it get that far and pay the money that is owed when it is due.

bully-moneyHarassment from Debt Collectors

Like in any field, there are reputable operators and disreputable individuals in the business.  The collections industry is no different.

Due to the number of consumer complaints to the Federal Trade Commission about overzealous and abusive debt collectors badgering and intimidating people in their pursuit of collecting on debts, restrictions have been put in place to protect consumers.  They are not allowed to strong-arm debtors and employ deceitful tactics to belittle and harass borrowers into paying their balance on the account.

Among the actions that the law  prohibits are the use of obscene language, name-calling, or threats of bodily harm through violence; place repeated calls with the intention to annoy or harass an individual; misrepresent themselves as an attorney, credit bureau representative, or government official; threaten with you arrest or other forms of legal action if you don’t pay; call you at work should that be unacceptable to your employer; or lie to you in any fashion about the amount that is owed or who they represent and why they are trying to contact you.

In addition, debt collectors may not publish your name or information to anyone outside of a credit bureau or provide false information about you anywhere. These are but a few of the restrictions protecting consumers from torment on the part of debt collectors.

Should you encounter a debt collector who is acting outside of the legal limits, you are within your rights to take certain steps to stop the behavior. You should start by writing a letter to the collector and the agency informing them to cease contacting you.  Be sure to send it via certified mail so you have a record on file of your correspondence.

Once the letter is received, the collector is not permitted to reach out to you again until they are prepared to take legal action. If you feel the debt has been attributed to you incorrectly, you can send a letter directly to the creditor informing them of such within 30 days from the initial request.

Be sure to record any abusive correspondence such as phone calls and voice mails or other messages that have been sent to you. You may then report the collector and the agency to the Federal Trade Commission as well as the state Attorney General.  You could also have cause to sue the offending parties in state or federal court.

Proper Procedure

Those collectors working within the legal mandated guidelines still have a wealth of resources and options at their disposal with which to track you down for the purpose of obtaining the money you owe them. They will attempt to contact anyone who actually owes money and, should they have the wrong person, they will no longer attempt to reach out to that individual.

Debt collectors are not allowed to pursue collections that have gone past the statute of limitations. They are prohibited from treating you differently based on race, gender, or other similar reasons. They should only attempt to reach you between the hours of 8:00am and 9:00pm unless given permission to reach you outside of those hours.

Get it in Writing

Should you be contacted by a debt collector about an outstanding amount owed, it’s important for you to be cognizant of your rights and act only after you have sufficient information from which to take action. The first thing you want to do is get verification in writing outlining how much you owe and the original creditor.

Once you provide that written request, the debt collector should then comply.  If the collector is unable to verify it for you, the collection activities should cease. The credit bureaus may also be contacted to inform them that the debt is under dispute or should be removed from your report altogether.

If you receive proof of the debt, then you may then dispute it with a letter saying that you feel that you don’t owe the money.  At this point, the debt collector must cease collection activities. Be sure to send these letters through certified mail so you have proof that it was sent and received. However, if the debt collector can produce proof that the debt is indeed valid, the collection activities may begin again under the Fair Debt Collection Practices Act.

Don’t Admit Anything Up Front

Just because a debt collector has contacted you about an outstanding bill doesn’t mean you should necessarily jump at the first chance to pay even a partial amount. In fact, don’t even agree that you owe the money or arrange to pay it off. Not yet at least.

Gather all of the information you need first so that you can make the best informed decisions about dealing with the problem. Remember that debt collectors only get paid if they collect.  They’re going to make it appear as time-sensitive and pressing as they can so you agree to pay some or all of it and avoid further collection activities and the embarrassment that you might feel because you’ve been told that you owe money.

Don’t fall for it. Take your time and gather all of the facts first. Do not make a payment, do not promise that you’ll make a payment, and don’t offer any information about yourself.

They may ask you to give them a small payment towards the debt, as little as just $10, to get the ball rolling.  While that may sound affordable and simple, it could adversely affect you and your standing in the matter. You may not be aware that the debt is beyond the statute of limitations.  If you pay even that small amount, then the debt that was no longer valid could be reactivated and you’d never know it.

Now you’re on the hook. The debt collectors are always seeking out any information they can get about you and your ability to pay them, which brings us to the next helpful tip about handling debt collectors.

Keep the Conversation Short

When a debt collector gets you on the phone, you can be sure that the longer you continue the conversation, the more information can be gleaned from you in their attempts to settle your debt. So the less you say to them, the better.

Don’t stay on the phone, don’t answer any questions, and if you stay in command of the conversation you’ll be able to control what you tell them and what they can find out from the discussion. Just remain fixated on the facts, don’t offer up any other commentary.

Ask them for any information you may need and they should give that to you. Anything else beyond that, simply thank them for calling and providing you with the data you requested and tell them you’ll call them back. This will give you ample time to figure out how you’re going to address the situation. The debt collectors won’t relent so you will have to deal with this at some point, especially if you do owe the money.

plan-building-blocksYour Plan of Attack

Now that you’ve had a sufficient amount of time to review everything about the account and the outstanding balance, as well as your rights and protections from collectors, you’ll need to put together a plan of attack to deal with the problem. We’ve already discussed the possibility of disputing the debt by way of a certified letter. If that doesn’t alleviate the problem, then you’ll need to start exploring other avenues.

The first is to figure out if you can pay off the debt. If it’s an old cell phone bill from 2008 for $45 then you should probably just pay it off and be done with it already. However, if you’re looking at a much higher amount of money you can start to consider the possible choices before you.

Paying Off Your Debt

There are three ways to pay the debt off.  You can discuss these options with the debt collector only after you are prepared to admit that the debt is owed and you are willing to make payment.

The first and most straightforward method is to simply pay it off in full. This will require you giving them some form of payment information.  Most collection agencies will be happy to take credit card or checking account information from you over the phone. Some of them may also have websites that you can visit and pay the bill online.

Try to refrain from giving out bank information and rather try to send in a cashier’s check instead. The debt collectors may not love the idea, but if you both agree that the payment is due and you will be sending it to the address they provide you shouldn’t have any other pushback on the matter.

The second is typically best-suited for larger sums of money that you are unable to pay off in one lump sum. Discuss a payment plan with the collector that lets you pay off the balance in affordable installments that are easier to manage. Most of them will agree to this scenario, but they may require you to give them some form of recurring payment option such as a credit card that they can keep on file and charge automatically when the installment is due.

The third option is to settle the debt for less than you owe. Collection agencies don’t always expect you to pay the balance in full. In fact, most times the debt is settled for a fraction of the original amount.

This is both good and bad for you: good in that you could save a considerable sum of money by only paying a percentage of the original debt, but bad in that it will be reflected on your credit report as “settled” and not “paid in full”. That can negatively impact any decision future creditors might make on assessing your creditworthiness. If they see you settled a debt, then they may feel like you might try to do the same with them and you could be denied any new credit. If an account is shown as paid in full that looks much better on your report.

Our Final Thoughts

No one likes dealing with debt collectors and many consumers will do everything they can to get one off their back should they find themselves at the mercy of a collection agency. As much as you may want to ignore the problem or just get rid of it as quickly as possible, always remain cognizant of your rights under the law.  Never make a decision or act without knowing who you’re dealing with, why they are contacting you, and getting confirmation that you owe the money they say you owe.

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