How to Deal with Collections

How to Deal with Collections

You recognize that number on the caller ID. It is another collection call. As if dodging persistent calls were not enough, you also know that when you get to the mailbox this evening, there will be a strongly worded letter with plenty of red ink and bolded words waiting for you. You want to pay your bills, but your finances are strained right now. Once those unpaid bills got turned over to collections, the calls became more frequent, and the letters filled your mailbox – but none of that changed your financial situation. The last thing you want is to end up in court for money owed, but you are unsure if you should pay the collections agency directly or if you can even afford to make any kind of payments. So, how should you deal with collections after your creditor has turned over a past due account? Here is a quick overview of why accounts go to collections, how it affects your finances, and what you can do to stop the collections process. 

Why did my account get turned over to collections?

Creditors want to be repaid for the money they lend you. Whether you borrow money from a creditor by using a credit card or taking out a payday loan, cash advance, or utilizing another lending service, the creditor allows you to spend their money on the promise that you will repay that money to the creditor according to their terms. Once you miss a payment, the creditor gets antsy. At the thirty-day mark after a payment is due, the account may be reported as delinquent. At this point, the creditor will be the one calling you or sending you letters asking about payment. Once that payment is one-hundred and eighty days late, then the creditor gives up hope of recovering payment from you and sells the account to a collection agency.

Still, creditors want to be paid. Though delinquent accounts are typically sold to collection agencies for pennies on the dollar, a loss for the creditor, the creditor recovers more money than the zero dollars they were able to recover from you. Collection agencies profit by chasing after you to recover the full amount owed on the delinquent account. The more money the collection agency can recover from you, the higher the agency profits. The collection agency bought your account for much less than it was worth, so successfully recovering the full outstanding balance from you can yield a large profit for the collection agency. 

What are the ramifications of having an account in collections?

Unfortunately, having an account turned over to collections can hurt your credit long-term. Like most negative marks on your credit report, collections notes will remain on your credit report for seven years. This not only drags down your credit score but can also deter future lenders from working with you.

What should I do after my account is turned over to collections?

While collection agencies can be intimidating, it is important to remember that they must meet certain requirements to collect from you. The Fair Debt Collection Practices Act is a federal law designed to protect consumers from harassment, threats, or other unpleasant debt collecting tactics. When a collection agency contacts you about an outstanding balance, make sure you ask for debt validation and a debt verification letter. You have the right to see proof of the collection agency’s ownership of the account and the right to collect the debt. Often, collection agencies will not provide this information without being asked for it, even though they are required to provide at least a validation letter within the first five days of the agency’s first contact with you. 

A common strategy for collection agencies to obtain the information they need to establish ownership of your account is to call you and ask you to verify the information. Unbeknownst to you, your “verification” of details like your address and full name may provide the collection agency with the information they did not have and otherwise could not collect on the debt without. Therefore, your responsibility is not to provide the collection agency with this information, but rather to ask them to provide it to you. Without adequate debt validation and verification, the collection agency does not have the right to collect a dime from you. Therefore, rather than providing the collection agency with these details upon request, you should promptly request debt validation and a debt verification letter from the collection agency at first contact. 

Once the debt is verified and you are satisfied that your account was properly sold to the collection agency, then you can negotiate a payment plan or settlement with the collection agency. You may not know how much the collection agency paid to obtain your account, but you can assume it was much less than the actual balance they are trying to collect. Therefore, when negotiating a payment to resolve the matter, do not be afraid to offer a small amount, even as low as five or ten percent of the alleged balance due. The collection agency is likely to accept less than they are trying to collect in satisfaction of the debt, especially if you can pay it as a lump sum or in three or fewer payments. However, even if you cannot offer a lump sum, you can still negotiate a payment plan for less than what is owed under terms you can afford. 

Sometimes, the debt is improperly reported either because a payment was not recorded or due to fraudulent activity. If the debt is inaccurate, you can dispute the debt which requires the collection agency to cease collection efforts and launch an investigation. During the investigation, the collection agency is not allowed to report the delinquent account. If the collection agency cannot verify the amount, collection efforts will stop permanently. 

Do I need an attorney if my account is in collections?

You can negotiate directly with the collection agency. However, if you are unsure about the validity of the debt or want assistance with the negotiation process, you can certainly retain the counsel of an experienced consumer litigation attorney who may be privy to negotiation tactics that can yield the best outcome.