How to deal with debt collectors? Now, not to give away the ending, but I'm telling you right now that paying it is quite literally the very last thing that you should do when it comes to debt collectors.
If you are dealing with the stress of how having a debt collector chasing you for money, don't worry. I am going to tell you everything that you need to know -- what a debt collector cannot do, what your rights are, and how you should handle debt collectors.
What Happens When Your Debt Goes to Collections
One of two things happens when a debt goes into collections.
Option one: the creditor that you owe money to -- say your credit card issuer or your mortgage lender -- thinks that you're behind on payments. In this case, the creditor might use its own debt collectors to follow up and collect the debt from you or they may hire a debt collection agency or a law firm to take it on.
Option two: a different company bought your debt from the original creditor and now it's trying to collect on the money that you owe. In this case, the original lender probably already received some sort of insurance money and sold your debt for pennies on the dollar.
What Debt Collectors Can and Cannot Do
Now, before I give you some tips for dealing with debt collectors, I want to make sure you know how to make sure that you are not being scammed and what your rights are when it comes to debt collections.
Debt Collectors Are Only Allowed Restricted Contact
The first thing I want you to know is that debt collectors are only allowed restricted contact. They can only call you between 8:00 am and 9:00 pm, and they're not allowed to call you at work. So, if you get a call outside of these hours, then you might be dealing with a debt collection scam.
You Can Request a Callback Number
Just like any other legitimate business, a debt collection agency should be able to provide you with company information, including a number to call them back. When they contact you, write down as much information about the company as possible, including its name and address. This is important to see if they are legally operating in your state.
Debt Collectors Cannot Lie or Harass You
The third thing I want you to know is that debt collectors cannot lie or harass you, or just generally be toxic people.
Debt collectors cannot make you pay more than you owe or threaten you with arrest, jail time, or property liens. They do not have the power to do any of those things, so if they say, otherwise, hang up.
Wage garnishment may be legal in your state, but your debt collector will need to take you to court first.
If a debt collector is posing as police or threatens to arrest you, then there's a good chance that this is a scam and you can report them and the threat to the Federal Trade Commission, the Consumer Financial Protection Bureau, or your state attorney general.
You Can Tell a Debt Collector to Stop Contacting You
The last thing I want you to know about your rights is that you can stop a debt collector from contacting you under the Fair Debt Collection Practices Act.
If you notify the collection agency in writing to stop communicating with you, then they can only contact you again to advise you on one of two things: 1) that they're going to stop trying to collect from you or 2) that they intend to take action against you, such as filing a lawsuit.
This law applies even if you do own the debt, so you do not have to just surrender to the fact that you're gonna be called repeatedly by debt collectors. Notify them in writing if you don't want to hear from any more.
How to Deal with Debt Collectors
Now that you understand your rights and how to watch out for potential scams, let's talk about how to deal with debt collector when they start ringing you up.
1) Don't admit to the debt
I know I might sound like a fat cat lawyer here, but seriously, just don't admit to the debt, especially not on the first phone call. Some debts come with a statute of limitations, meaning after a certain period of time, collectors legally can't win a court order for repayment.
If you admit that the debt is yours, you may reset the clock on that statute of limitations, so don't confirm the debt, especially on your first contact, until you get more facts, even if you know the debt is yours.
2) Get the facts straight
Without admitting that the debt is yours, get information on the debt itself. Ask:
- who the original creditor was
- the original debt amount
- how much is owed
The more details the debt collector can provide, the better. If the statute of limitations has expired, the debt collector can no longer sue you to recoup the debt. Plus, when your debt has been sold, there's often misinformation about the debt itself or who owes it, so you want to make sure that all of that is accurate.
3) Don't be emotionally manipulated
A lot of people feel guilty about their debt and debt collectors prey on that emotion. They create a sense of urgency that hits you right where you're sensitive. We always tell people that they have to learn how to deal with the difference between money facts and money feelings.
Think about where your emotions and attitude towards debt and money have come from, and then release yourself from negative emotions that are holding you back.
If you find yourself on the phone with a debt collector, don't let them make you feel bad, okay? And don't pay or promise payment or give any payment information at this time. (You sensing a theme here? Like I said, paying is literally the last thing that you're going to do.) You want to just ask for information on the debt and say that you'll be in touch later.
4) Dispute any errors with the debt
If you find any erroneous information with the claim, dispute it. Mail a letter to the debt collector stating the amount that they're saying you owe is incorrect.
You should also ask for proof of the debt collector's claim that you owe money, such as copy of a credit card bill, and be sure to keep a copy of the letter yourself. The Consumer Financial Protection Bureau offers a sample dispute letter.
If you and the collector cannot settle the dispute, you may want to bring in a third party arbitrator to weigh the evidence, and if things get really hairy, you may want to consider hiring an attorney. Make sure that you have records of everything that you've been discussing with the collector in case it reaches this point. It's always better to communicate via email or mail so you have a copy of your conversations in writing.
5) Decide if you want to pay off this debt or not
This may sound a little odd. We often feel like we have a moral obligation to pay our debts. But the truth is that the lender takes on a certain amount of risk when they lend out money. This is part of why they charge interest; it's to cover the cost of debts that have gone bad.
You may have your own relationship to debt. You may want to pay off this debt, but it may not be in your best financial interest to do so.
When a debt goes into collections, the main impact that it has on you is damage to your credit score, and any debt that has already gone into collections has already done that damage. And it's going to continue to have a negative impact on your credit score for about seven years, until it falls off of your credit report.
Now, in some cases you may be able to negotiate the removal of this derogatory mark on your credit report as part of paying a settlement on the debt. But if you have a debt that's gone into collections and it's close to being seven years old, it will likely fall off your credit report soon. And it may not be worth paying.
It's not going to improve your credit score at this point to clear it off because you've had that mark on your report for so long, and if it's going to fall off and stop damaging your credit report, you may be better off just waiting it out, especially if you have any current debts that you're struggling with.
Focus first on maintaining good standing with the active debts that you have before paying off debts in collections.
6) Negotiate the debt
At the end of the day, whether it's a creditor or a collections agency reaching out to you, all they want is money. And if it isn't the original creditor, they probably paid a lot less for the debt than the amount that you actually owe on it, so they might be willing to consider either lowering the debt so you can pay it all off in one lump sum or setting up a payment plan that you can reasonably manage.
Make sure that you negotiate and always, always, always get any agreement that you come to in writing before you take the final step.
7) Pay down the debt
Now, at long last, after you have done all of the previous steps, it's finally time to pay up. If you have decided to pay off this debt, how you go about this will depend on what you worked out with the collector.
If you agreed to a lower lump sum, then pony up the payment and move on with your life. If you've set up a payment plan, then make sure that you have that payment built into your monthly budget and that you're going to be able to meet it.
Final Thoughts on Handling Debt in Collections
Rarely should you just try to solve a problem by throwing money at it, and when it comes to debt collections, that should not be your first instinct. I know this is stressful, but take a deep breath and approach this problem with knowledge, patience, and strategy.
If you need some help getting out of debt, be sure to check out our free training, Say Goodbye to Debt Forever, where we'll teach you:
- How to tell if you have a “debt identity” and what to do about it
- The 3 things keeping you in debt (spoiler: they’re not what you think)
- Steps to take to get out of credit card debt -- once and for all
- The SIMPLE debt equation that tells you exactly what you need to do
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