Being heavily in debt can take a huge toll – both emotionally and physically. We understand how tough it is to be several months behind on your bills with little or no hope of catching up. But it can be even more devastating to receive a call from a debt collector as this means one of your lenders has charged off your debt and sold it to a collection agency.
What this means to your credit
While it’s impossible to say exactly how much damage that charged-off debt will do to your credit it will definitely damage it. And it will stay in your credit report for seven years, making it more difficult for you to get new credit. The reason for this is that most lenders view your credit history as the best predictor of how you will behave in the future. If you have behaved badly, as evidenced by that charged-off debt, you will be considered a poor credit risk going forward. The only good news is that the effect it’s having on your credit will diminish as the years go by.
When you answer the phone and learn it’s a debt collector calling, don’t panic. Take a deep breath and relax because you do have rights. But it’s important to understand that most debt collectors work on a commission basis. This gives them a huge incentive to collect that debt. The collector may bluster and threaten you with all kinds of dire consequences like calling your employer or family members about your debt. But he really can’t. In fact, what a debt collector can do is severely limited by federal law.
Know your rights
Several years ago our Congress passed a law called the Fair Debt Collection Practices Act. This law defines what a debt collector can and can’t do. For example, it can’t …
- Call you before 8:00 a.m. or after 9:00 p.m.
- Disclose information of your debts to third parties (i.e., your family members or friends)Contact you after written notification that you do not want to be contacted any further
- Call you repeatedly
- Accuse you of having committed a crime
- Use deceptive methods to collect debts
- Call you at inconvenient times/places
- Claim to be affiliated with any governmental organization
- Use profane/abusive language
- Misrepresent the character, amount or legal status of a debt
- Threaten to take any action that cannot be taken legally
- Threaten to communicate false credit information
If you believe the debt collector is engaged in any of these practices, you could hire a lawyer and sue the agency for damages and might be able to collect as much as $1000 per incident.
Ask for the details
The first thing you need to do is ask the collector the name of the original creditor, the exact amount you owe and how you could dispute the debt or have it verified. If the collector can’t or won’t provide this information when it first contacts you it’s required by law to send you the information in written form within five days after first contacting you. If you don’t believe you owe that particular debt or the amount of the debt, you could dispute it. You are required to do this in writing and within 30 days of when the collector first provided you with the original information. If you do dispute the debt, then the collector can’t contact you again until the agency has investigated your dispute or the debt collector has provided you in writing with verification of the debt. You can also ask the collector to provide the original creditor’s name and address. If you make this request in writing and within 30 days, the collector must stop all collection activities until it has provided you with that information.
If you do decide to dispute the debt or request the name and address of the original creditor be sure to keep a copy of the letter(s) for your file.
To stop all calls
You need to talk to the debt collector at least once to see if you could resolve the matter – even if you don’t think the debt is yours, can’t pay it off or the collector has contacted you by mistake. If you decide after that initial conversation that you don’t want to receive any more calls from the collector, you can write a letter requesting the collector to not contact you again. You should send the letter by certified mail and pay for a “return receipt” so that you can prove the collector actually received it.
Once you send this letter the collector cannot contact you again except for two exceptions. It can contact you to tell you that it won’t be contacting you again or to inform you of the specific action it will take next – such as filing a lawsuit. Do understand that you still owe the debt but you may at least get the collector off your back.
There’s no guarantee
The only problem with writing a letter to the debt collection agency requesting that it stop contacting you is that it doesn’t have to accept the letter even if you sent it “return receipt required.” It’s important to remember, as noted above, that the debt collector’s incentive is to collect from you and he will do anything permitted by law to do so.
You could negotiate with the debt collector
One fact the debt collector doesn’t want you to know is that the agency bought your debt for much less than you actually owe. In fact, the big credit card companies tend to bundle their debts and sell them off to collection agencies for pennies on the dollar. That $750 debt the collector has contacted you about may have cost his agency $25 or less. This leaves a lot of room for negotiation. Also, the older the debt, the more likely it is that collector will settle with you. While paying off the debt won’t remove it from your credit report, it may improve your credit score – depending on which credit scoring model is used. And of course, if you do pay off the debt make sure to get everything in writing, including, of course, the amount you are paying and that this amount will be considered as total satisfaction of the debt.