In Collections? How to Deal With Debt Collectors

/ BY / Managing Debt

A bill that goes to collections is not only damaging to your credit score, but it can be a stressful situation to deal with. However, you can effectively deal with collection agencies if you understand your rights and how collection agencies operate.

Collection agencies explained

If you receive a call or letter from a collection agency, it's most likely a third party collection agency. A third party collection occurs when the original lender or creditor no longer attempts to collect the debt from you. Instead, they sell it to the collection agency for less than it is originally worth. The collection agency makes its money by attempting to collect the money you owe.

Tips for dealing with collection agencies

The following tips will help you better understand collection agencies and how to deal with them:

Know your rights.

Because their business depends on collecting money from you, collection agencies can be quite aggressive in their tactics to collect. In the past, this often included calling at all hours or calling excessively throughout the day, making threats, or calling friends, family members or employers to try and collect the debt.

Because of these tactics, the Federal Trade Commission (FTC) enacted the Fair Debt Collection Practices Act. Under this law, a collection agency is prohibited from:

  • Contacting you before 8 am or after 9 pm Monday through Saturday or before 1 pm and 5 pm on Sundays
  • Calling you more than 3 times a week
  • Harassing you through foul language or making threats such as wage garnishment, arrest, or legal action
  • Making false statement

For a complete list of your rights under the FDCPA, visit FTC.gov. If you think a debt collector has violated any of these laws, you can file a complaint with the attorney general in your state or with the FTC.

Verify the debt.

Once the collection agency contacts you demanding money, you have the right to verify the validity of the debt within 30 days. By law, the collection agency must not only prove the debt within 30 days, but that they also have the right to collect it. If they cannot do this, all collections must cease and the collections account will be removed from your credit report.

Negotiate the amount owed.

If you do owe the money, most collection agencies will negotiate the amount owed, sometimes for a significant amount. Some will even negotiate up to 70% off of what you originally owe. If you do come to a negotiation, make sure you get it in writing.

You can also negotiate for a "pay for delete" letter from the collection agency. This letter promises that the collection agency will send an order to the credit reporting agencies to delete the account from your credit report once it is paid. Again, make sure this is in writing as well.

Preventing Collections

The best way to avoid dealing with collection agencies is to prevent accounts from being sold to collections in the first place. Accounts that are commonly sent to collection agencies include medical and dental bills, auto loans, credit card debts, cell phones, utilities, and other household debts.

If you owe money to a company, contact them immediately and discuss your options. Companies would much rather work with you than sell your debt to a collection agency. Most are willing to work out a monthly payment plan that you can afford. Oftentimes, this will also prevent your credit from being negatively affected as well.

Dealing with collection agencies can be stressful and intimidating, but knowing how collection agencies work and your rights when in collections can make it an easier experience to deal with and help you prevent collections in the future.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.