How to Deal with Debt in Collections
Sometimes it begins with a single phone call. In other cases, debt collectors begin sending notices via snail mail.
No matter how they attempt to get in touch with, dealing with debt collectors can cause stress, uncertainty, and that terrible, sinking feeling in your stomach.
But at the end of the day, you still have to deal with them. After all, you can’t ignore your debt if your long-term goal is to be financially stable, independent, and free. So how do you deal with your debt once it reaches collections?
There are a few lenses through which I suggest approaching debt in this situation: the emotional lens, the legal lens, and the practical lens, or how to go about dealing with debt in collections.
Below is a deep dive into what you need to know.
How to Emotionally Prepare to Deal with Debt Collectors
Before we examine the legal and practical approach to dealing with debt in collections, we must first address how debt collectors impact us emotionally.
Why?
Financial stress can take a toll on the body, causing conditions “such as heart disease, diabetes, and other illnesses,” according to psychologist and researcher Linda Gallo, Ph.D.
[article post=”2″]Beyond that, financial stress can actually make our finances worse! Behavioral experts have proven in multiple research studies that stress leads to poor decision-making, especially when it comes to finances, reports NBC News.
In other words, financial stress takes a physical toll as well as a financial toll.
So how can you emotionally prepare to deal with debt collectors?
The first step is to gain control of the situation. This is crucial. It might seem counterintuitive because being in this position feels like you are out of control in the first place. Your finances aren’t where you want them to be, and strangers are contacting you to pay debt that feels overwhelming.
However, in situations where emotions are running high, a psychological trick is to initiate action and to do so with confidence. Even if you have to fake the confidence at first, it will eventually kick in.
If you passively deal with a situation, then you will feel like you are out of control. Being proactive, on the other hand, will slowly boost your confidence and momentum.
For example, do not ignore the debt collectors. Passively dealing with the situation is ignoring the collectors, but proactively dealing with the situation is to confront them directly. Remember, collectors will continue to attempt to contact you until you pay the debt, so there is no point in ignoring them anyway. Furthermore, ignoring them can actually cause additional damage to your credit score and report.
Another way to gain control of the situation is to understand the situation fully. Things that you should know include:
- Your legal rights (more on that below)
- Your total debt, including who your lenders are and their interest rates
- What you can afford to pay (based on income and monthly expenses)
The more you understand the situation, the more prepared you will be to handle your debt and the collectors.
What Are Your Legal Rights When Dealing with Debt Collectors?
Debt collectors are legally required to follow specific rules when trying to get you to pay any outstanding debt.
In some cases, the original creditor will be the one who contacts you. However, it’s not unusual for companies to hire a third party to collect the debt on their behalf. This is why a company you have never heard of or dealt with before may try to get you to pay the debt. Assuming the company is legitimate and not a scam, they have already received your contact information and the account's details from the original creditor.
[article post=”3″]To verify that you’re dealing with a legitimate debt collection agency and not a scam artist, the collector should be able to tell you the debt owed, the original creditor, and any personal information such as where you live.
Here are some rights that you have:
- Contact is restricted. Legitimate collectors cannot harass you 24/7. If this is happening, chances are that you’re dealing with a scam. Instead, they can only contact you between 8 am and 9 pm. Furthermore, they are not allowed to contact you at work.
- They cannot make threats, lie, or harass you. Collectors are not allowed to make threats such as jail time, wage garnishment, property liens, or even arrest. Even if wage garnishment is indeed legal in your state, the company must first take you to court. Collectors also cannot lie about what you owe, which is why it’s important to keep track of your total debt.
- You can ask for a callback number. A legitimate company should be able to provide you with their company name, address, and callback number. If you’re unsure whether or not you’re dealing with a reputable company, ask for this information so that you can research whether the company is legitimate.
- You don’t have to give details over the phone. In fact, it is generally recommended that you avoid excessive talking. Even if you are asked direct questions, you should not say whether you can pay or plan on it. Instead, you should request a letter validating the debt information (explained below).
You should also know that collections companies are not allowed to contact anyone else about you, including friends and family. Yes, this even includes your spouse. They are also not allowed to pose as law enforcement.
Make sure you get everything verified in writing.
This is another legal right that can buy you time as well as provide you with security.
According to the Fair Debt Collection Practices Act, you have 30 days within the first contact to demand proof that you owe the money. Whether the company calls or sends you mail, you should send them a debt validation letter within 30 days asking for documented proof you owe the money.
It’s important to note that once you send a debt validation letter, the company is not allowed to continue their collection efforts until they’ve sent sufficient documentation.
Yes, this means they cannot call, send you letters, or even add this to your credit report until they thoroughly reply.
In your letter, you must:
- Reference the date of the initial contact
- Clearly state that you are requesting validation of the debt
- Ask the company to note whether the debt is within the statute of limitations and how that is determined
- If it isn’t the original creditor, ask for proof of the company’s authority to collect the debt (i.e. company’s licensing information)
- Do not admit to owing the debt and do not make any reference to payment
I recommend sending the letter via certified mail, which provides you with proof of when the letter was mailed and received.
If proof of debt is not supplied, the collectors may not contact you about any payments. Any attempt to collect without verifying this information is in violation of the Fair Debt Collection Practices Act.
Strategies to Pay Off Debt in Collections
In many cases, it is possible to negotiate to reduce your debt or even eliminate specific fees.
Why would a company agree to settle the debt for pennies on the dollar?
In some cases, collection agencies purchase the old debts from other companies after the original company has written off the debt as a loss. As long as the new agency makes a return on their investment, they will be happy. However, even if this isn’t the case, a company might be willing to negotiate if they fear a total loss. After all, if the debt is discharged through bankruptcy, they won’t see a single cent.
Here’s the good news: it is possible to negotiate a debt settlement on your own.
[article post=”1″]You don’t need to hire an expensive lawyer or accountant to do the heavy lifting.
The process of negotiating a debt settlement is another topic entirely, but if you’re interested in learning more about it, I recommend that you read my article here. Again, I want to emphasize that all agreements, including debt settlement, should be documented and made in writing.
Bottom Line
Once you’ve followed the steps above, the best advice I can give is to leave the past behind you. You are not defined by life’s challenges but by how you respond to them. Some of us get into debt due to poor financial decisions. Others due to uncontrollable circumstances such as medical debt. Sometimes it’s an unfortunate combination of both. No matter the situation, do not allow your emotions or decision-making to become clouded by the past.
Remember, it’s always possible to emerge stronger, wiser, and determined to shape your financial future.
If you are determined to change your future one step at a time, here are some of my favorite articles that I recommend as first steps:
If it is charged off how long does it stay on your credit report? And how long can you try to collect for? How if you do pay affect your credit if you pay less than the debt? Do you make payments ? Or not?