How to Deal With Collection Agencies

Having a plan for when a debt collector calls is a good way to remind yourself that you have options. Here are vital steps to take when dealing with a debt collector. 

What Should I Do When a Debt Collection Agency Calls?

Follow these tips to deal with collection agencies. 

Don't ignore the debt

As tempting as it can be to pull the blankets up over your head and pretend there's no debt, don't do it. Remind yourself that there's power in knowledge, and that you can handle this situation. Ignoring debts can lead to lawsuits and other financial consequences. Your best bet is always to deal with debt collectors proactively. Remember that you have debt relief options.

Verify the debt

Anyone—from an unknown debt collector to your cousin Joe—could say you owe them money. However, it's up to the debt collector to prove it. If you're contacted by a debt collector, ask for their name, as well as the name and address of the collection agency and the creditor. 

Unless the debt collector provides you with the following information in their first contact, they must send you a written debt validation. The debt validation must include: 

• The amount of the debt.

• Name of the creditor to whom the debt is owed.

• A statement saying that you have 30 days to dispute the validity of the notice, and if you fail to dispute the debt, it will be assumed valid by the debt collector.

• A statement saying that if you notify the debt collector within that 30-day period that you're disputing the debt, the debt collector must obtain verification you owe the debt or a copy of judgment against you. 

• A statement indicating that if you send a written request within 30 days, the debt collector will provide you with the name and address of the original creditor, if different from the current creditor.

Check the statute of limitations

Debt has a statute of limitation, and once the statute of limitations expires, creditors have no legal standing to collect it or sue you for it. How long the statute of limitations lasts depends on the type of debt and the state in which you live. In most states, the statute of limitations ranges from three to 20 years. The majority of debt becomes uncollectible after three to six years. 

If contacted by a debt collector, admit to nothing. Even if you suspect you owe the money, let them know you'll do some research (once they've provided you with debt verification). No matter how much they push, don't give them any money or acknowledge the debt. If the statute of limitations has run out on your debt, you don’t want to do or say anything that could reset the clock and make it possible for a creditor to legally collect. 

Deal with valid debt

If the debt is valid, you can negotiate. If you decide to negotiate, calculate how much you're able to pay, either through a lump sum or monthly payments. A creditor who's concerned it may not recover any money may be open to negotiation. After all, some money is better than none. 

Contact the collection agency

If your goal is to settle a debt for less than is owed, it's called "debt settlement." You can undertake settling on your own, or trust it to a debt settlement company that negotiates on your behalf. 

Whether you're going it alone or working with professionals, now is the time to contact the collection agency about negotiating a reduced payoff amount. While most negotiated debt is settled with a lump sum payment, a debt collector may be open to monthly payments instead. 

Get agreements in writing

If the debt collector agrees to settle, do nothing until you have the agreement in writing. Ask the collector to spell out what they've agreed to, and what's expected of each party. Make sure the written agreement includes a clause saying once payment has been made, the entirety of the debt is considered repaid. 

Make your payment

Once you have an agreement in writing, make your payment. If you're not making a lump sum payment, make it a priority to never miss a monthly payment. Missing a payment may be enough for the company to terminate the agreement. 

Create a folder 

It's vital to keep a record of each payment. That way, if a bill collector tries to collect on the debt again in the future, you can easily prove that the debt has been settled. 

Consider debt consolidation

If you learn that you do owe the money, but your budget is tight, look into whether debt consolidation (also called loan consolidation) could help. Debt consolidation involves combining multiple debts into a single loan, ideally with a lower interest rate than the rates you're currently paying. 

Get help

When it comes to debt, there are professionals who could help. Decide whether you'd be more comfortable speaking with a credit counselor, debt expert, or attorney, and give one a call. They are trained to help you wade through your options and choose the one that's right for you. 

What Are My Rights When Dealing With Debt Collectors?

The primary reason not to fear a call from a debt collector is the Fair Debt Collection Practices Act (FDCPA). FDCPA establishes guidelines that debt collectors must follow so they don't overstep your rights. For example, debt collectors can't:

• Contact you before 8 a.m. or after 9 p.m.

• Cannot call you more than seven times within a seven-day period.

• Cannot call you again within seven days once they've discussed your debt with you by telephone.

• Contact you at work if you tell them you're not allowed to get calls there.

• Contact you via email or text message if you tell them to stop.

• Post about your debt on social media.

• Message you privately on social media if you tell them not to.

• Threaten to hurt you if you don't pay.

• Threaten you with jail time.

• Use profane language when discussing your debt.

• Lie about the debt you owe.

• Say they’re suing you if they really aren’t planning to.

• Pretend to be law enforcement or a government agency.

It's important to keep detailed records of communications with debt collectors. If your rights are violated, file a complaint with the Consumer Financial Protection Bureau (CFPB).

How Do Debt Collection Agencies Work?

Collection agencies may be hired by an original creditor and paid a commission or contingency fee based on the amount they recover. Or they may purchase debt for pennies on the dollar from creditors who have given up on recovering it. In either case, it's in their financial interest to collect as much as possible. 

What types of debt get sent to collection?

Debt collectors get involved with collecting all types of outstanding debt, including credit card, medical, personal loans, student loans, utilities, auto loans, rent, tax debt, and retail finances. 

Each debt type has specific regulations and procedures regarding how it can be collected. 

When does debt get sent to collection?

When you miss a payment, some creditors have an in-house collections department that gives you a call. However, when your payment is 120 days to 180 days late, the creditor may charge off the debt, close your account, and sell the debt to a third-party collection agency. However, there's no set standard for when accounts go to collections, and if you're significantly late making payments, it could happen any time. 

It's in your best interest to contact a creditor as soon as you know you have a problem making a payment. The creditor could come up with a solution that works for both of you. 

How do debt collection agencies get my information?

If you've ever wondered how a debt collector is able to find you, here are some of the sources they use:

• The creditor they purchased the debt from.

• Public records, such as legal documents that contain your information.

• Credit reporting agencies.

• Skip tracing (searching various databases and public records to find your current contact information). 

• Third-party data providers, also called data brokers. 

Alternatives to Dealing With Debt Collection Agencies

If you want a debt collector off your back, you have options, including the following.

Debt settlement

With debt settlement, you or someone working on your behalf negotiates with creditors to pay off debt for less than the total owed. Debt settlement could be useful if you're facing significant financial hardship, although the process could negatively impact your credit score. That's because settled debts may be reported on your credit report as "settled for less than the full amount," a note that future creditors can see. 

Debt consolidation

This is a strategy that involves combining multiple debts into a single loan. The goal is to:

• Lower the interest rate

• Simplify your bill-paying process

• Potentially lower your overall monthly payment

While consolidation doesn't eliminate debt, it does restructure it. If you pursue debt consolidation, keep an eye on loan fees and the risk of accumulating more debt if spending habits were at the root of the problem. 

Debt management plan

A debt management plan (DMP) is a structured repayment program that helps you manage and pay off debts over time. They're typically set up through credit counseling agencies that assess your financial situation and negotiate with creditors on your behalf. Under a DMP, you make one consolidated monthly payment to the credit counseling agency, which then distributes the funds to creditors. Ideally, your credit counselor negotiates a lower interest rate, waived fees, or more favorable repayment terms with creditors, making it easier to pay the debt off as agreed.

DMPs typically last from three to five years, during which time you pay off all of the debt. Participation in a DMP could temporarily impact your credit score since accounts may be marked as "in repayment" on your credit report. A few credit counseling agencies may offer financial education to those enrolled in their DMP, offering knowledge you can use the rest of your life.