If you have become overwhelmed and fallen behind in paying your credit obligations, you are not alone. Roughly one in three Americans have unpaid bills that have been sent to collection agencies. Being contacted by debt collectors can create psychological stress and makes getting back on sound financial footing even more challenging. Knowing how to handle requests for repayment can put you in charge of getting your credit back on track.
First, and most importantly: If you believe the debt is not yours, send a letter to the collection company demanding verification.
If you have an unpaid debt and are being contacted by debt collectors, your first step is to contact the original creditor. Call the credit card agency, doctor’s office or cellphone company directly and offer a plan to settle your payments. Even when an account is turned over to a collection agency, the majority of creditors continue to own the debt. The collectors are hired hands who get paid when they recover it. The more money you pay the original creditor, the more they earn. This explains why debt collectors are frequently aggressive in their approach. They want you to pay as much as you can, as fast as you can, because their own paycheck depends on it.
Sometimes a debt collection agency will “buy” the debt at a reduced face value from creditors who believe they will be unable to collect. The agency then tries to maximize how much it can collect. In this case, the bad news is that you are going to have to deal with the collection agency and not the original creditor. The good news is that federal law compels these collection agencies to follow specific rules of contact when trying to recover a debt.
No matter how outside agencies obtain your contact information to pursue collection, they generally follow a set pattern of contact once they have it. First, they send a letter. Next, they begin making calls. Sometimes – but rarely – they will file a lawsuit. These collection activities can be reported to the three major credit bureaus, which is particularly damaging because the information stays on your report for up to seven years – even if you settle the account.
A debt collector must inform you that he is a debt collector trying to collect a debt and that any information obtained will be used for that purpose. In some cases, this contact can feel intimidating. But the Fair Debt Collection Practices Act limits the procedures a third-party agency can use to collect.
Don’t be bullied. By law, agencies are not allowed to:
- threaten you in any way, including threats of jail time or wage
- garnish wages (unless they have obtained a court ordered judgment against you)
- try to collect more money than is owed
- use abusive language
- communicate with third parties, like friends or relatives, regarding your debt
- harass with phone calls late at night (after 9 p.m.) or in the early morning (before 8 a.m.)
- call at work if you have requested not to be contacted at your place of business
- continue to contact a debtor who has requested in writing not to be contacted
If you are being harassed by overly aggressive debt collectors, you can report suspected violations to the Federal Trade Commission at 1-877-FTC-HELP.
If the debt is valid, and the collector has not violated a law in trying to collect it, negotiating a settlement is often the best resolution. If your debt is complex or you are being contacted by multiple collection agencies, you may want a lawyer to negotiate on your behalf. But for the most part, you should be able to deal with the agencies yourself.
When you settle a debt, ask to have any credit reporting that lists the collection amount removed. Follow up by reviewing your credit reports carefully and correcting any misinformation.