The Slacker's Guide to Dealing With a Debt Collector

Are you getting collection calls and wish there was an easier way to handle the problem? Here’s a guide to dealing with a debt collector … using the least effort possible.

DON’T ignore bills, letters and threats thinking that collectors will just forget about the money, or that the firm won’t be able to find you. They won’t, and they will.

DO immediately ask a collector to prove the debt is real, and to verify the amount with documentation. Do this by filing a dispute notice using a form letter like this one from the Consumer Financial Protection Bureau.

DON’T pay a bill just because someone calls and demands money. Debt collectors may get things wrong, and you need to make sure you are A) paying the right amount, and B) truly satisfying the debt — for that, you need detailed documentation from the collector. Also, make sure you’re C) paying a legitimate collector and not a scammer.

DO pay your bills and debts you owe. It’s only fair. If you’re having trouble paying your debts, consider taking on a short-term, part-time job to pay them off.

DON’T let a collector talk you into making a small payment towards a large balance because making a payment can re-start the statute of limitations (SOL) clock. It might seem like a good idea to throw $10 or $20 at a collections caller just to get him or her to hang up but it can actually work against you. Don’t make a payment until you’re certain you owe the debt, and that you can work out a payment plan – in writing – that works within your budget.

DO know what the statute of limitations is in your state. They range wildly — here’s a list — but debt older than the SOL, also called “time-barred debt” does not need to be paid. It’s important to note that aged debt can still impact your credit score, however. And debt collectors may still try to collect it, so it’s important to know your rights.

DON’T take harassment lying down. If you are called late at night, early in the morning, or at work, or after you’ve demanded the calls stop, or you learn that co-workers or neighbors are being told about your debt, send a cease and desist letter. Consider consulting a lawyer who specializes in Fair Debt Collection Practices Act lawsuits.

DO keep records of everything. Use a desktop scanner to make a digital copy of every letter — digital copies can be easier to find. Keep a folder on your desk of hard copies. Organization is the first step to cleaning up a financial mess.

DON’T pay an upfront fee to a company to negotiate debt settlements on your behalf. Even though new rules make it illegal for settlement companies to collect upfront fees, some still try it. Even without upfront fees, debt settlement can still be a risky strategy. You may want to consider other options – consolidation, counseling and bankruptcy – before working with a debt settlement company.

DO contact a credit counselor if you really need help. The nonprofit National Foundation for Credit Counseling offers a list of experts who will offer free help, and potentially be able to reduce interest rates and fees. Counselors can’t help if you don’t make a plan and stick to it, however.

DON’T wait too long to file for bankruptcy, or be ashamed about it. Guilt-ridden consumers spend their precious last financial resources — such as their retirement money — doing all they can to avoid bankruptcy, and ultimately file anyway. That puts them in an even worse position than they need to be (retirement funds can often be spared in bankruptcy).

DO expect to pay taxes on debts that are forgiven. If a creditor or collector writes off $600 or more in unpaid balances, the IRS requires them to send you a 1099-C reporting that forgiven debt as “income” to you. You may be able to avoid paying taxes on that amount if you qualify, but the time to figure that out is when you are settling the debt, not in April when you are scrambling to file your taxes. (For help, click here.)

And finally, DO be an active participant in your credit/debt profile. Be a defensive driver on your financial road. Little mistakes can turn into big problems over time. A $70 disagreement over a bill can turn into a four-year battle. A typo can make you miss out on a home purchase because of a credit report error.

Don’t wait until debt collectors start harassing you to find out someone thinks you owe them money. Check your credit report regularly, as well as your credit scores. (You can get your credit reports for free every year, and you can get your credit scores for free, updated every 14 days, on Credit.com.) When you close an account, make sure you have a copy of a bill showing a $0 balance. Expect the worst from corporations with flawed computer systems. Live your financial life alert to the fact that potholes can appear anywhere, and anticipate them, even when the road seems smooth. That might not sound fair, but it is reality.