How to Deal With Debt Collectors

When your creditor decides they no longer want to try to collect overdue debts, they may assign or sell those debts to third-party debt collectors. Collections account is a debt (account) that have been sold or turned over to a collection agency. This usually happens when the account is more than 180 days past due.

When your account goes into collections, it remains on your credit file for seven years from the date the account became first past due, or Date of Last Activity.

Things you should know when your account goes into collections

There is a lot of misconception out there on what to do and what not to do when have a collection on your credit report. The one thing everyone agrees on is that, having a collection account on your credit report will have an extremely negative effect on your credit scores.

Below are a few other things you should know about a collection account on your credit report:
A collection account stays on your credit file for 7 (seven) years from the date the account became first past due, or date of last activity.
Paying off a collection account will not remove it from your credit report, it will remain on your report with a $0 until the end of the 7 years.
Having a collection with a $0 balance is better for your credit score than a collection account with a balance.
Paying off a collection account will however temporarily hurt your credit score, as it is considered activity on a negative account.
In the long run, paying off a collection account will be better for your scores.
Calling a collection agency or making a payment does not re-start the seven years that an account can be on your report.
If you successfully remove a collection account from your credit report, it does not mean you do not owe it. A collector can continue to try to collect until the debt is paid or negotiated. (always keep good records)
There are tax consequence to negotiating debt forgiveness. By law, lenders or creditors are required to issue you a Form 1099-C, Cancellation of Debt, if they cancel a debt owed to them of $600 or more. Any debt or portion of a debt that is forgiven is considered taxable income in the eyes of the IRS.

Things you should NEVER DO when a debt collector calls you

Don't share private information (like bank accounts, your credit or debt card numbers) no matter what debt collectors say.

Record the call if you can or write down all dates, times, and detailed notes of what's said for each call.

Keep records by saving everything debt collectors send you and make copies of anything before you send it (don't send originals).

Questions to ask when a debt collector calls you

1 If you're contacted by a debt collector, the first thing to remember is that the Fair Debt Collections Practices Act provides you with rights and it's important that you know your right before speaking to them, it you must. Read about your right under the Fair Debt Collections Practices Act at the bottom of this page.

2 Remember the debt collector is not your friend or your therapist and doesn't care about your Credit situation or your reasons for not paying the bill. Their main goal is to collect whatever they can, whichever way they can.

3 DO NOT admit to the debt and never allow them to take control of the call by asking you a series of question. Remember they have very limited information on you and will try get more personal information out of you if you volunteers that information. Questions like, where do you work or how much do you take home, is none of their business.

NEVER give debt collectors more information than they need!

4 Flip the switch on them and instead of answering questions, ask them these questions and write down their answers. Remember, never admit to the debt. Once you have asked the questions below, end the call by telling them you will get back to them. (Do not answer their questions)

5 At the end of the call, if you need to request more information about the debt, fill out and send the first template to the debt collector. Don't forget to check the boxes next to the information you're requesting.

6 If the debt isn't yours, fill out and send the second template to dispute the debt.

Negotiating With Debt Collectors

In an effort remove negative items on your credit reports and improve your credit score, you may need to resolve any outstanding debt on your credit report.

For items on your credit report that have gone to collections, there are a few options to resolving debt in an effort to improve your credit scores.

Credit accounts that should be given high priority

High priority should be given to public records, such as tax liens, child support judgments and other judgments to avoid further legal issues.
High priority should be given to student loan collections to avoid wage and tax refund garnishment.
High priority should also be given to collection accounts that may prevent you from obtaining housing in the future, such as debts owed to apartment complexes, landlords or utility companies.

Collection Account - Paying Off In Full

Pay the debt in full and moving on with your life is one of the options available to you. Just remember paying off a collection account will not remove it from your credit report, it will however remain on your report with a $0 until the end of the 7 years.

Another negotiating option at your disposal is "Pay-for-Delete". Since your credit is already jacked up at this point, most experts believe the only time you should pay a collection agency is when they agree to delete that item from your credit report (pay for delete). This is usually the first option to try before deciding to pay the debt in full. Pay for delete is an agreement you enter into with a creditor / collection agency to pay all or part of an outstanding balance in exchange for that creditor removing negative information from your credit report.

Unlike the first option of paying the debt in full and moving on with your life, "Pay for delete" will instantly raise your credit score, since that item will be off your credit report.

During negotiations if a creditor / collection agency agrees to a Pay for delete, you must follow the steps below:
1. Contact the company you owe the debt to find out where to send the payment and who to make the payment out to. Keep a record of the names and phone numbers of people you spoke with about paying the debt.
2. Do not take their word for it. Get the agreement in writing before you pay them. That way if they don't delete it after you pay, you have document proof that the company agreed to delete it.
3. Pay them with a check, certified money order or cashier’s check. Never give them electronic access to your bank account by giving them your credit or debt card number.
4. In the memo section of your check, write “for payment in full” and be sure to include the account number.
5. Have the company send you a letter stating the account has been paid in full and that you have a zero balance once the payment is processed.
6. Request a receipt for payment that shows a zero balance.
7. Send copies of the receipt and letter showing a zero balance to the credit bureaus to ensure the account information is updated. The company should contact the credit bureau and update your credit report when they receive you payment.

Collection Account - Making a Payment Arrangement

Negotiating a payment plan with a debt collection agency is another option that may give you more time to pay down your debt.

If you owe the debt, but do not have money available to pay it, ask the debt collector if you can work out a payment plan. If the agency does agree to a new payment plan, do the following:

.1 Let them know you would like to take care of the account, but would not be able to pay in full at this time.
2. Looked at your monthly spending plan to determine the amount you can afford to pay each month. It is important you do not agree to pay an amount greater than you can afford to avoid another potentially harmful financial situation.
3. Get the payment agreement in writing and keep a record of the names and phone numbers of people you spoke with about paying the debt.
4. Keep copies or electronic records of all payments you make.

Collection Account - Offering a Settlement

Figure out the total amount of what you’re willing to pay and then try to settle with the debt collector on that amount or a mutually agreed amount that will fully resolve the account. You can do this yourself by contacting the collector

1. Before you call, have the money on hand you wish to use to pay for a settlement agreement.
2. Know how much you can afford to pay and would like to pay. Be sure to not settle for an amount you are not comfortable with paying. If you cannot reach an agreement that matches what you can afford, simply thank the creditor and hang up the phone.
3. Use your negotiation skills to reach an agreement. Remember to always offer an amount much less than you can actually afford and you and the creditor will meet somewhere in the middle for a payment amount.
4. Keep good records of the dates, times, and the names of people you spoke with.
5. Send a cashier’s check or certified money order for the amount you and the creditor have agreed upon.(never give them your credit or debt card number).
6. Make sure to write “For Payment in Full” or “Settled in Full” in the memo section along with the account number and to make a copy of the check or money order for your records.
7. Ask the company to send you a letter stating the account has a zero balance once they receive the settlement amount.
8. Send copies of the receipt and letter showing a zero to the credit bureaus to ensure the account information is updated. The company should contact the credit bureau and update when they receive you payment, this is just an additional step to ensure your file is accurate.

Doing Nothing About a Collection Account

If the collection information is valid and you don't plan on paying or even negotiating your debt, you may refrain from taking action on your debts and instead wait for the statute of limitations to run out, typically in 7 years from the original delinquency date. This is the recommended option, especially if this is an old debt.

Remember negative items on your credit report are not a life sentence. All negative information will eventually be removed from your credit report. The older an item the less impact they are going to have on your FICO score. For example, a collection item that is 5 years old will hurt much less than a collections item that is 5 months old.

If you plan to choose this option, you need to be very careful so you don't accidentally restart the 7 year statute of limitations on your debt. If debt collectors contact you:
Be mindful of your language
Ask all the questions listed above but
Do not to admit that the debt is yours
Do not make a payment or agree to pay the debt
Do not charge that old account.

All the above actions will automatically restart the statute of limitations on that debt by keeping it on your credit report for another 7 years.

You can ask a debt collection agency to stop contacting you by sending it a written letter telling them to do not contact you. A phone call is not enough. Once it receives your letter, the debt collector can contact you one more time to tell you they are going to stop contacting you or that they intend to take some specific action, such as a lawsuit.

Understand that this only stops the agency from contacting you. The agency can still sue you in court and if it gets a judgment, your wages could be garnished.

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