The phone rings … you answer. The guy on the other end of the line says you owe money and he’s going to sue you if you don’t pay up immediately! You panic. You know you owed the money to another company, but this guy is calling from the ABC Collection agency or the law offices of XYZ and he’s getting pretty riled up over the whole thing. You’re not sure what to do. The guy sounds pretty convincing. But the amount of the debt isn’t what you remembered … it’s much, much more. You ask about the difference between what you remember and the new number. The collector’s voice goes up an octave and he says its for attorney’s fees, collection costs, service fees, transfer fees and other expenses you’ve never heard of. What do you do? What can you do?
First of all, the collection agent is just trying to push your buttons. Some people panic when a bill collector calls. They’re embarrassed, confused and caught off-guard. The best policy is to slow down and get as much information as possible. Write down what the collector is saying if you have a note pad available. Recording the conversation is even better. Tell the collector you are going to record the conversation and see what happens. Professional collectors won’t mind being recorded. Collection thugs won’t want to be recorded. In any case, tell the collector you do not discuss financial matters on the telephone and you want to be contacted only by mail.
Verification and Validation
Before you pay anything to anyone, verify you actually owe the money. Many collection agencies purchase unpaid debts from the original creditors for pennies on the dollar and most of those debts are pretty old – that’s why they’re being sold off. Every state has a statute of limitations on debts and when they can be collected. If the debt is over 4 to 6 years old, you will want to determine what your state’s laws are concerning the aging of debts and their collect-ability. Sending a debt validation request letter to the creditor will help determine how much is owed and how much is just added on costs the collector hopes to get above and beyond the true debt amount. Click here for Sample Validation Letters
Knowledge is Power
Once you know the amount of the original debt, the amounts being added to the debt, and the age of the debt, you have the ammunition you need to fire back at the collection agency. If the debt is old and you suspect it has been sold to the collection agency, you should re-contact the original creditor to verify this before you begin negotiating on the debt with them. If the collection agency works as a third party collector, but the debt still remains with the original creditor, you can choose to deal with the collection agency (not recommended) or you may be able to go back to the original creditor and negotiate with them (recommended). Even though the original creditor has hired a collection agency, oftentimes the accounts receivable department will still negotiate with you to settle the debt.
Debt settlement is negotiation. The collector has one number in mind and you have another, lower, number in mind. Whatever the process, be sure to get everything you do in writing. Oral agreements are okay, but no matter what the result of your negotiations, get the terms and amounts in written form on the collection agency’s letterhead just in case you have to remind the collection agency of their agreement. Negotiating in writing takes time. Verifying the debt’s validity takes time. Time is in your favor so don’t give up any time you don’t need to give up. And time is not the collector’s friend. He wants to get money NOW! By slowing down the process, you can also bring down the settlement amount.
The Good, the Bad, and the Ugly
There are professional collection companies who treat debtors with respect … those agencies are good. There are collection companies who try to overwhelm a debtor with legalese and collection pressure … they’re bad. And then there are collectors who scream and shout and tell you you’re going to jail if you don’t give them your bank account information immediately … that’s ugly. Professionals and high-pressure collections are one thing, but screamers and shouters are abusive and they should not be dealt with directly. Once again, inform the collector you do not talk over the phone and direct them to write to you regarding the debt in question. You can send the collector a “Cease and Desist” letter which should stop the harassing phone calls. If the Cease & Desist letter doesn’t work, file a complaint with the Federal Trade Commission and consider hiring a lawyer to sue them for their abuse. If possible, record the abuse for use when filing your complaint and/or filing a legal action against the collector. Check your state’s statutes on recording conversations because in 35 states it’s okay to record the conversation without notifying the other party you’re doing it.
The Bottom Line
Collectors get paid by collecting money, not promises of money. Collection agencies make a profit from scared people. The bottom line in this scenario is to be intelligent, knowledgeable and diligent … not scared and afraid. Once the collector understands he’s dealing with a competent, knowledgeable, capable debtor, he will probably back off and conduct the negotiation in a more suitable manner. Whatever the discussion is with a collector, never give him your social security number, your bank account number, or any other personal information. And only promise to do what you know you can do … never make promises you can’t keep.