Being contacted by a debt collector can be very scary.
The debt collectors’ only objective is to collect as much money from you as possible, as they’re usually paid on a commission basis. If they can’t collect much money from you they earn less.
The Federal Trade Commission has rules about how debt collectors can act and what they can say. Unfortunately, there are unscrupulous ones that will say anything to get you to pay up.
What Debt Collectors Can’t Do
It’s Important to understand that according to the Fair Debt Collection Practices Act FDCPA), debt collectors cannot:
- Call you before 8:00 Am or after 9:00 PM
- Call you on a Sunday
- Contact you at work if the debt collector knows that your employer does not want you to be contacted there during working hours
- Get in touch with your employer about a debt you owe, unless the debt is past-due child support.
- Contact your relatives, friends, or neighbors about the money you owe in order to embarrass you into paying your debts
- Swear or insult you when you are having a conversation, or threaten you with the loss of your reputation or with jail time
- Call you repeatedly during a relatively short period of time. Such behavior is harassment, and the FDCPA makes harassment illegal
The first step in dealing with a debt collector
The first, or next time a collector calls, you need to verify the debt. This means requesting what’s called a Debt Verification/Validation Letter. You can ask for this letter either verbally or by mailing/faxing a letter to the collection agency.
Make sure it’s not a “zombie” debt
Your next step is to see if it could be a “zombie” debt. This is a debt that’s many years old and has passed the statute of limitations. The statute of limitations varies from state to state but is typically five years from the time you last took some action on the debt like making a payment. Before you do or say anything, make sure you get your debt verified or validated, so you will know it’s not a “zombie” debt. If you do say or agree to something, you could restart the debt’s statute of limitations, so it would once again be active.
Negotiate to pay as little as possible
The little secret of debt collection is that collectors buy debts for much less than their balances. The collector’s agency could have paid as little as $20 for your $800 debt. A debt collector often will settle for much less than your balance. As in any negotiation, you will want to start low because once you name a number you can’t go any lower. For example, you might start at 30% or less of what you owe. You can also make your offer more appealing by offering to make a lump sum payment.
Ask to have the debt reported as “paid as agreed upon”
It’s very bad to have your debt reported to the credit bureaus as settled or settlement. Ask the collector to report the debt at least as “paid as agreed upon.” While the collector may not agree to this, it’s worth asking – especially if you’re offering to pay the debt in a lump sum.
Reduce the debt by no more than $600
Any amount of debt over $600 that is forgiven will be reported to the IRS and taxed as ordinary income. You can keep this from happening by reducing any debt you settle by no more than $600. Of course, it may be worthwhile to pay taxes on an amount over $600 because that’s debt you don’t have to pay – assuming you can dramatically reduce the amount you owe.
Get everything in writing
If you and the debt collector are able to come to an agreement, make sure you get everything in writing before you pay off the debt. This is so if the collector doesn’t do what the two of you had agreed on, you will be able to prove your case.
Check your credit reports
Finally, wait for a few weeks after you’ve paid the collection agency and then check your credit reports. This is to make sure that everything was reported to the credit bureaus per your agreement. If you find an error, you will need to go back to the debt collector and work to get it corrected.
Getting contacted by a debt collector can be a frightening experience. But if you understand your rights, as you have read this in article, you can keep the collector from making your life miserable. And if you follow the tips you’ve just read, you should be able to get any debt reduced considerably, paid off and then reported to the credit bureaus in a way that won’t damage your credit history as severely.