7 Things to Know About Debt Collection Agencies

Have you been contacted by a collection agency? If you’re behind in paying your bills—or a creditor’s records mistakenly indicate that you are—a debt collector may contact you. These calls can trigger all sorts of emotions. They can be scary, stressful, annoying, or even a surprise. You may not know how you’ll come up with the payment or the debt collector may be so aggressive that you’re thrown off-balance by the interaction. Try to stay calm and remember that the person on the other end of the phone is just doing their job of getting the payment.

Let’s help you understand the world of debt collections so that you’ll be aware of your rights, can find ways to handle the situation, and discover possible solutions to help put an end to the phone calls.

1. What is a Collection Agency?

There’s a difference between a creditor—the company you owe money too—and a collection agency.

Once your account with a creditor has been unpaid for a certain amount of time, that creditor may determine that the money you owe them is still worth the time and resources they are spending to get it back. Not all creditors do this in the same time period. Some do this when an account is 30 days past due, others do it at 120 days, while some creditors have a different formula.

This means the creditor either sells the debt to the collection agency, or hires the collection agency to collect on your debt on their behalf. Either way, by charging off your debt, the creditor won’t get the full amount owed. However, they’ve decided it’s worth it to no longer have it on their accounting books and/or put their time and effort against collect the debt.

Once your debt has been charged off to a collection agency, the debt collector will take over trying to get you to repay. They will continue to require payment on the full debt amount so they can make as much money as they can. Not surprisingly, to accomplish this in-full payment, the debt collector may use aggressive debt tactics to pressure you into paying, which is why dealing with a collection agency can be stressful.

2. How Does a Debt Collection Agency Impact Your Credit?

As described above, a creditor usually won’t sell your debt to a collection agency until after it’s already gone “past due”. This means that even before you hear from a debt collector, your credit has been flagged and credit bureaus are already aware that you’re delinquent on a bill. It is likely that this “ding” will reduce your overall credit score.

A collection agency won’t cause impact to your credit score. If your score went down, it was, at least in part, based on the creditor’s reporting that your account was past due. In other words, receiving a call from a debt collector is a symptom of—not the cause of—a reduced credit score.

There’s no clear formula for how much your credit score might be impacted by going past due. For someone with a FICO score of 780 who has never previously missed a payment on any credit account, a 30-day delinquency could cause a score reduction of up to 110 points. Yet someone with a 680 FICO score and two previous late payments (one from a couple years ago and another from a year ago) and now a new delinquency may only have a drop of between 60–80 points.1

3. What to Expect When a Debt Collection Agency Calls

Debt collection agencies have a bad reputation—and for good reason. When you’re already stressed about money and trying to make ends meet, their relentless tactics and aggressive behavior over the phone can cause anxiety. In fact, according to the Consumer Financial Protection Bureau’s 2017 Survey, 27% of consumers who had been contacted by a debt collector reported feeling threatened and 36% stated they received late-night or early morning calls.2 In addition, the collection agency might pad the debt owed with their own fees, saying that you owe more on the debt than you do. And worse: they could be calling you about a debt you don’t even owe.

The only goal of a debt collection agency is to get you to pay. They will do whatever it takes to reach that goal: call you multiple times every day, send letters, threaten lawsuits. While some unsecured debts—such as medical or credit card bills—have a statute of limitations after which a debt becomes “expired,” this does not mean that you no longer owe this debt. A collection agency may still seek payment on any unpaid obligations. The only difference with expired debts is that after the debt expires you cannot be sued for payment on the debt. Note that every state has their own statute of limitations on debt.

4. When is a Debt Collection Agency Stepping Over the Line?

Disreputable collection agencies will apply inappropriate tactics. By knowing your rights and being aware, you can call them out for bad behavior, plus report them to the Better Business Bureau as well as the original creditor.

Before you get on the phone with a debt collector, it’s good to understand what strategies collection agencies use as well as what they can and cannot say, and what may be inappropriate or illegal action by them.

Although a debt collector is permitted to call you at work, it is illegal for them to visit your workplace to try to collect payment. Plus if you tell the debt collector to stop calling you at work, they must stop.

Other things a collection agency cannot do:

  • Misstate the amount you owe
  • Claim you’ve committed a crime
  • Indicate paperwork they send is a legal form when it is not
  • Indicate paperwork they send is NOT a legal form when it is
  • Call you before 8:00 AM or after 9:00 PM, unless agreed to by you
  • Falsely represent themselves as an attorney or government worker
  • Misrepresent that they operate/work for a credit reporting agency
  • Harass you by threatening violence, repeating calls, publishing your debts or other information about you, or using abusive or obscene language

If you think a collection agency might be making any of these violations, contact a consumer protection lawyer to see if you have any legal recourse. You have rights as a debtor, and there are legal consequences for creditors and collection agencies who violate your rights.

5. How to Handle a Call from a Collection Agency

First, take a deep breath. Then take another, as you try to remain as calm as possible. Also, try to be prepared for the call—this can help reduce your stress when speaking with collection agency.

Each time you receive a call from a collection agency, save the number into your phone so that you can know who is calling the next time. They may call from many different numbers, so you may have to do this several times. When you are on the call, take thorough notes about everything the debt collector said. That way, on the next call you will be able to refresh your memory on what a debt collector has already told you and you’ll be better prepared to respond in a cool, calm manner. Thinking of your responses ahead of time should help you feel in control and negate their aggressive tactics.

The debt collector will pressure you into paying the full amount of the debt. After all, that is the best way to maximize their profits. You can try to negotiate the debt amount, but they will pressure you to pay more than you want. Explain to the debt collector that you are unable pay them at this moment, yet will make sure they are paid. Never offer too many details on why you can’t pay them right now. Not only is it none of their business, they could use such details against you to try to get a commitment for payment.

What if the collection agency is threatening a lawsuit? Be aware that only a law firm can actually sue you, so if the collection agency is saying they will sue you, it’s probably just a tactic to get you to pay more. If they are telling you they will send your account to a law firm that will sue you, that’s a different matter. You can try to stop legal action by paying a token amount on the debt each month. However, if you truly cannot afford to pay anything on a debt, then write a letter that includes your account number and ask them to stop calling, writing, or visiting your home in an attempt to collect the money they claim you owe. Once the letter has been received, the original creditor can still contact you, but the collection agency must stop requesting payment.

The collection agency may continue to contact you, but only to explain what they will do next. So for instance, they can notify you that they will sue you in court, but they cannot attempt to pressure you into a payment. Just remember that you still owe the money even if they stop contacting you.

And if a debt collector is making you angry, stressed, or frustrated, then get off the phone. Tell them they can call later, once you’ve had time to think. Take some time to decompress, gather your thoughts, and prepare. Ignore their calls until you’re ready to talk with them again. By taking some time to clear your head, you may be able to handle the call more easily.

6. What If You Don’t Owe What They Say You Owe?

Inaccuracies do happen. For instance, you may have already paid the creditor, the charge has been dismissed, or the collection agency may have contacted the wrong person. This issue isn’t uncommon.

When you doubt a debt you’re being asked to pay, first check your credit report. It’s free to order your credit report once per year. Visit annualcreditreport.com or directly contact the credit reporting bureaus: Equifax, Experian, and TransUnion. Each report lists all of your current and past credit card, loan, and debt accounts, along with your payment status. Check your credit report for any errors and request that the credit agency correct those errors. Although most credit reports do not include your credit score, many banks, credit unions, and lenders will provide credit scores to customers. Alternatively, you can purchase a copy of your credit scores from myfico.com.

Some errors you might see on your credit report are outdated debts or false debts. An outdated debt is one where it has been at least seven years since the original delinquency of the debt, while a false debt is one that is not yours (such as a belonging to a different “Jill Smith”). You have the right to disagree with a charge. If you find an error on the report, then file a dispute with the credit bureau.

To dispute a charge and have the collections information removed from your credit report, send a letter to the original creditor, credit bureau, and the collection agency. Include the following:

  • Reason for disagreeing with the charge
  • Original receipt/billing statement
  • Proof that either the debt is not yours or proof that you already paid it

Additionally, send a letter to the debt collection agency and include all of the above, plus:

  • Tell them you don’t owe money
  • Ask for verification of the debt
  • Inform the collection agency to stop contacting you

If they send written verification of the debt, such as a copy of a bill for the amount you owe, then a collector is legally allowed to begin contacting you again.

7. Can You Settle a Debt with a Collection Agency?

One of the best strategies to deal with this pressure is to negotiate on the amount you owe. Because the collection agency paid significantly less than the original amount of your debt—pennies on the dollar—they may agree to settle for less than the amount originally owed. Some money is better than none. However, if you take this route, be sure to get an agreement in writing that shows the debt to be considered paid in full for the agreed-to settlement amount.

The biggest downside of negotiating with a collection agency is that it can be very time-consuming and stressful. That’s why some people choose instead to have a professional debt negotiator do it for them, by enrolling their debts into a debt settlement program like the one offered by Freedom Debt Relief. While enrolling in a debt settlement program may not stop the phone calls right away, as the debts begin to get negotiated and settled, the calls should fade away.

The team of professional debt negotiators at Freedom Debt Relief has been negotiating with thousands of creditor and collection agencies since 2002, so we have a deep expertise on how to negotiate the right way, at the right time. After you enroll, we create a custom negotiation strategy based on your specific mix of creditors. Then, our professional negotiators contact your creditors and collection agencies on your behalf to get them to reduce the amount you owe them as much as possible.

To learn more about how debt settlement and other debt solutions could help you stop or prevent collection agency phone calls, download our free How To Manage Debt guide now.

Freedom Debt Relief is the largest, most-established debt settlement company, and we take pride in the fact that we have helped over a half million people resolve over $10 billion in debt. If you qualify for our program, we could help you too.

The reality is, the only way to stop collection agency phone calls is to no longer be in debt. And if the current methods you are using to pay off your debt aren’t working, we can help find a solution that might be better. Call us at 800-230-1553 to talk to one of our Certified Debt Consultants. Trained as experts in a range of debt solutions, they are friendly, compassionate people who can help you find a way to put your debt behind you once and for all. Their job is to help you find the solution that could put you on the road to financial freedom—even if that solution isn’t our program.