How to Deal with Debt Collection Agencies

by Scott Sery on January 4, 2013

DebtMost people would agree that being in debt is no fun.  Many people even want to pay off their debts like mortgages and student loans as fast as possible.  This desire to get rid of debt is even greater when they have bad debt hanging over them.   There are times when a person gets over-extended, and as a result they simply cannot pay their debt.  At that point the lender sends them to collections.  This can spark a whole host of emotions.  Rather than replying in haste, know that there are ways to make this work out for everyone in the long run.

First and foremost is to make sure it is a debt that you actually owe.  Companies will make mistakes, and sometimes send out collections notices even though the bill has been paid in full.  Keep calm, and call the lender.  Explain the situation, and ask that they update their records.  If you have the receipt that shows the debt has been paid, even better.  A simple phone call is often enough to get things taken care of, but sometimes you will need to send written proof that you do not actually owe on this debt.  Remember, document everything.  Even record your phone calls if possible.

If the collection is legit, you will be notified well in advance.  In fact, the business who you owe the money will notify that you are being turned over to collections.  At this point, you can still pay off your debt without collections agencies being involved.  If you still fail to pay the debt, the agency will take over.  You will receive a written notification that legally must include all the information about the debt, and some of your rights as the collectee.

The first time the collectors call, make sure you are courteous, and get all the information.  Write down who you are speaking to, how much the debt is, who it was owed to, what the key dates are, and what the plan of action is going forward.  Remember, at this point, do not admit to owing anything.  All you are doing is requesting information.  After getting the information ask the collector for a validation letter, and inform them that going forward all communication is to be done in writing, unless they are returning your call.

Now here is where things get tough.  While you legally are obligated to the debt (if it is within the statute of limitations, between 4 and 7 years depending on your state), you may not be in any position to repay it.  If that is the case, come up with a firm number of what you would be able to afford per month.  You hold most of the power since the most some of these agencies can do is put a ding on your credit score.  After determining an amount, call the agency back and negotiate a deal.  Stick to your number, they will try to get more out of you.  Come to an agreement that all late fees and interest will be waived if you pay off the amount you have determined by an agreed upon date.  Once an agreement is in place, have them put it in writing (or better yet you put it in writing) and have them sign off on it.  After that, make sure you repay the debt.

Being in debt is not any fun.  Receiving a collections letter is even worse.  If you find yourself in this situation, make sure you know your rights.  You still need to be treated civilly, and just because you have fallen on hard times and missed some payments does not mean you deserve to be harassed or embarrassed.  If you feel you are in over your head with the debt, take some time to find an attorney that will take on your case.  If not, follow these simple steps.  The collection agencies want to make money.  They do not make money by taking you to court or writing off your debt, so a little is better than nothing to them.

Does anyone have any experience dealing with Debt Collection Agencies?

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Scott Sery

Scott Sery is a native to Billings, Montana. Within an hour in nearly any direction he can be found fishing, hunting, backpacking, caving, and rock or ice climbing. With an extensive knowledge of the finance and insurance world, Scott loves to write personal finance articles. When not talking money, he enjoys passing on his knowledge of the back country, or how to live sustainably. You can learn more about Scott on his website ScottSery.com

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  • Jason @ WorkSaveLive

    Dealing with debt collectors was one of the worst experiences that I ever dealt with. They constantly harass you (and rightfully so) and they really don’t give a crap about your situation or what you did so that you’re unable to pay them. I ended up using a debt consolidation company and then settled the majority of my other debts as I was unwilling to get on repayment terms with them.

  • http://Www.Plantingourpennies.Com/ Mrs PoP @ PlantingOurPennies

    Be very careful about recording phone calls – unless you have consent from the other party on the line, it’s illegal in a LOT of places.

    But the rest of the advice is solid. Figure out where the debt came from – especially if a mistake caused it and deal with it at the source!

  • http://twitter.com/CanadianBudgetB CanadianBudgetBinder

    I’ve never personally had to deal with them but like Jason says they can be darn nasty. Although we are to be polite they don’t give a hoot, they want their cash. I believe in Canada the same thing applies to request the validation and tell them to no longer call rather send letters in the post. Something about phone calls that just fire people up and that’s why they do it. They don’t stop there they will call co-signers or even family members if they can find them to try and locate the owner of the bill. What a job! No way! Lots of great tips here!

  • http://www.monsterpiggybank.com/ Glen @ Monster Piggy Bank

    I couldn’t imagine how tough it would be to be chased by debt collectors. Hopefully I never have to be.

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  • Funancials

    One thing I’ve seen a lot is duplicate reporting to the credit bureau. Collection company X will sell the debt to Collection company Y and then company Z….all three will report a separate debt to the credit reporting agencies. Your one collection quickly turned to three.

    • http://www.onesmartdollar.com/ Sean @ One Smart Dollar

      That would make the whole situation even more stressful

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