In the decade from the peak of the Great Recession in 2009 to 2019, the total revenue for the debt collection industry grew by almost $2.3 trillion.
It’s a lucrative business and there are a lot of debt collection agencies trying to get a piece of it.
They don’t always play by the rules though.
If you’re dealing with debt collectors, it’s important to know what they can and can’t do.
Let’s look at some tips and strategies to help you deal with debt.
How Debt Collectors Work
When you fall behind on your payments, the lender won’t usually send it to a debt collector right away.
A collection agency keeps a percentage of any money they collect so even if you pay the debt in full, the original lender won’t get it all back.
Debt collectors usually get involved if the lender has already tried to collect the debt themselves with no success.
When they first take on the collection, they’ll try to get you to pay with minimal pressure.
If you don’t pay the debt, they’ll start taking more serious actions to get results.
3 Types of Debt Collectors
There are 3 primary types of debt collectors:
- Internal collector
- Collection agency
- Debt buyers
Internal collectors are usually the first ones you’ll deal with. They work for the lender.
A collection agency is the next stage if the internal collectors don’t get results.
At this point, the lender hands it off to someone else to do all the work in exchange for a percentage of any payments received.
Debt buyers are the final stage of collections when the first two get nowhere.
These collectors buy the debt for pennies on the dollar in the hope that they can collect at least some of the debt to make a profit.
What Debt Collectors Can and Cannot Do to Collect
The Fair Debt Collection Practices Act, or FDHCP, sets out the rules about what collectors can and cannot do when trying to collect an outstanding debt.
These rules are in place to protect you from harassment and excessive pressure to pay.
When you’re dealing with collection agencies, they’re allowed to:
- Contact you at home
- Charge interest on the amount owing
- Take you to court
- Garnish your wages
- Collect on old debts
In the course of trying to recover the debt, collectors are not allowed to:
- Hide information from you
- Contact you anytime and anywhere. They can only contact you between 8 am and 9 pm unless you agree otherwise and they can’t contact you at work if you tell them not to.
- Bother your friends or family to try and collect from you
- Pretend they’re someone they’re not
- Lie to or about you
- Threaten you
- Harass you
- Disclose your debt to anyone but you, your spouse, your lawyer, and the credit reporting agencies
- Charge you for a deceased person’s outstanding debt
- Apply your payment to anything except the debt you intend it to pay
- Garnish Federal payments like Social Security and veterans’ benefits
If a debt collector does any of these things they’re not allowed to under the FDHCP, you have grounds to lodge a complaint according to the recourse laid out in the Act.
How to Protect Yourself When Dealing with Debt Collectors
You can’t necessarily stop debt collectors but you can take some steps to protect yourself and minimize their impact on your life.
Get All the Details
When a debt collector contacts you, get all the details about the debt.
Anything that might be helpful down the road is important, such as how much you owe, when the debt was incurred, who the lender was, and the interest rate you have to pay.
Dispute Any Errors
If any of the information you gather is incorrect, dispute those errors before agreeing to pay anything.
If they have any incorrect information, it could invalidate the debt entirely but even if it doesn’t, correcting the errors could lower what you owe.
Check Your Credit Report
Order a copy of your credit report from the 3 credit reporting agencies to check it for errors as well.
You’re entitled to order a free credit report every 12 months.
Talk to a Lawyer
A lawyer will help you work out the best course of action to take care of your outstanding debt.
That might be a repayment plan or it could be more extreme, such as declaring bankruptcy through an attorney like https://tlbrownlaw.com/practices/bankruptcy-attorney/.
Keep Thorough Records
Track everything you do while dealing with the collection agency.
Keep copies of all correspondence, take notes of any telephone conversations, and keep receipts for all payments you make.
If you have to mail anything to the collection agency, it’s a good idea to send it by registered mail so you can prove it reached them.
Don’t Be Afraid to Negotiate
If you’re able to pay the outstanding debt, don’t be afraid to negotiate for a reduced payout.
The collection process costs the lender and the debt collector so a fast resolution saves them money.
They might be willing to reduce the amount you owe in exchange for saving on the cost of collections.
They can end up with more profit and you can end up keeping some money in your wallet.
Don’t Ignore Your Debt and Hope It Goes Away
One of the worst things you can do when dealing with debt collectors is to ignore your debt and hope it disappears.
It won’t go away that easily and if you ignore it, you could find yourself facing more serious consequences like a court summons or having your wages garnished.
Debt collectors understand that a lot of people don’t end up in their sights by choice.
If you’re willing to work with them to pay back what you owe, they’re usually willing to do whatever they can to help you get the debt paid.
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