Collections Crash Course
by Credit.com
The letters…the calls…dealing with collection agencies can be stressful.
After all, it is their job to get you to pay up. But if you understand your rights
under the Fair Debt Collection Act and learn a few negotiation tricks, you can take
control of the situation.
Collections basics
Debt collection is a $15 billion dollar a year industry,
and it’s growing fast. There are thousands of companies in the US that buy
debts for pennies on the dollar and attempt to recover what is owed. Collections
agencies buy past-due debts from cell phone companies, credit card companies, lenders,
public libraries, video stores, gyms, cable companies, medical offices, and more.
Then they contact the consumer who owes the debts and negotiate to have it paid
back. Collectors can find out where borrowers live and work and can contact them
by phone, mail, fax, or telegram. If you are a facing debt issues, click here for a confidential consultation
First steps
If have an overdue debt sent to a collections agency, you will
be contacted by the collector and sent a letter explaining the situation. You should
open and read this letter immediately, since you only have 30 days to dispute certain
facts. If there are errors or if the letter is a mistake, you should notify the
collector and related creditors right away to resolve the matter. You should keep
notes about all of your communications with collectors as well as copies of all
correspondence for future reference.
Impact on your credit
When your debt is sent to collections you will also
see a new record appear on your credit report. This collection record will remain
on your credit report for 7 years from the last 180-day late payment on the original
account, whether or not you pay the debt back. In the event that your original account
is also on your credit report, both account records will remain on your report for
7 years. This is also true if a new record appears when your debt is sold to a new
collection agency. Review the information a collection agency posts on your credit
report very carefully. It is fairly common for collectors to report incorrect facts
to help with negotiations.
Your rights
You have several rights under the Fair Debt Collection Act.
You can request that a collector does not contact you anymore, or only contacts
you by mail. Under this law, collectors cannot threaten you or pretend to be a credit
bureau. They cannot purposely tell you that you owe more than you really do, use
obscenities, or tell you that you are guilty of a crime. Read
the full summary of these collection rights online.
What to do
Once you have verified that the debt is accurate and read your
rights under the FDCA, you need to consider your options. In most situations, you
should negotiate a deal, pay the collector, and work on rebuilding your credit.
However, if you have other debts that are not in collections and need to paid, you
should probably work on paying these debts first. Keep in mind that this collection
record will remain on your credit report for 7 years, whether you pay or not. In
most cases, it doesn’t make sense to pay the collection debt before you can
afford to do so comfortably.
Negotiating a deal
When you decide to pay the collection debt, you should
contact the collector to see if you can negotiate an agreement. Since collectors
buy debt for pennies on the dollar, they are often open to negotiating a reduced
settlement. Some collection agencies will also offer to take the record off your
credit report if you pay the debt, although this is technically illegal. Have the
collector send you the terms of your settlement in writing. You may need to use
this letter if the debt resurfaces.
Preventing collections
Because collection agencies buy such a wide variety of debts,
debt collections are common occurrences. Medical collections are especially common
because of policies that leave the consumer ultimately responsible for medical bills
even if the insurance company was supposed to cover the expense. You should always
pay a debt that is in danger of being sold to collections (even using a credit card
or if the debt is incorrect) to prevent damage to your credit
reports. You can continue your dispute after the debt has been paid. People
also commonly end up with collection debts when their bills are sent to an incorrect
or old address. Be sure to track your bills closely and file a change of address
form with the post office when you move.
Being contacted by a collections agency can be scary and overwhelming. If you take
a step back, read your rights, and think about your options, you can take control
of the situation. Credit.com is here to help you get your finances back in order.
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