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From the Experts at Credit.com

Collections Crash Course

Debt Collections Crash Course

The letters…the calls…dealing with collection agencies can be stressful. After all, it is their job to get you to pay up. But if you understand your rights under the Fair Debt Collection Act and learn a few negotiation tricks, you can take control of the situation.

Collections Basics

Debt collection is a $15 billion dollar a year industry, and it’s growing fast. There are thousands of companies in the US that buy debts for pennies on the dollar and attempt to recover what is owed. Collections agencies buy past-due debts from cell phone companies, credit card companies, lenders, public libraries, video stores, gyms, cable companies, medical offices, and more. Then they contact the consumer who owes the debts and negotiate to have it paid back. Collectors can find out where borrowers live and work and can contact them by phone, mail, fax, or telegram.

Find Out Where You Stand

You can check your credit score each month using Credit.com’s free Credit Report Card. This completely free tool will break down your credit score into sections and give you a grade for each. You’ll see, for example, how your payment history, debt and other factors affect your score, and you’ll get recommendations for steps you may want to consider to address problems. In addition, you’ll also find credit offers from lenders who may be willing to offer you credit. Checking your own credit reports and scores does not affect your credit score in any way.

First Steps

If have an overdue debt sent to a collections agency, you will be contacted by the collector and sent a letter explaining the situation. You should open and read this letter immediately, since you only have 30 days to dispute certain facts. If there are errors or if the letter is a mistake, you should notify the collector and related creditors right away to resolve the matter. You should keep notes about all of your communications with collectors as well as copies of all correspondence for future reference.

Impact on Your Credit

When your debt is sent to collections you will also see a new record appear on your credit report. This collection record will remain on your credit report for 7 years from the last 180-day late payment on the original account, whether or not you pay the debt back. In the event that your original account is also on your credit report, both account records will remain on your report for 7 years. This is also true if a new record appears when your debt is sold to a new collection agency. Review the information a collection agency posts on your credit report very carefully. It is fairly common for collectors to report incorrect facts to help with negotiations.

Your Rights

You have several rights under the Fair Debt Collection Practices Act. You can request that a collector does not contact you anymore, or only contacts you by mail. Under this law, collectors cannot threaten you or pretend to be a credit bureau. They cannot purposely tell you that you owe more than you really do, use obscenities, or tell you that you are guilty of a crime. [Related Article: The Top 10 Debt Collection Rights for Consumers]

What To Do

Once you have verified that the debt is accurate and read your rights under the FDCA, you need to consider your options. In most situations, you should negotiate a deal, pay the collector, and work on rebuilding your credit. However, if you have other debts that are not in collections and need to paid, you should probably work on paying these debts first. Keep in mind that this collection record will remain on your credit report for 7 years, whether you pay or not. In most cases, it doesn’t make sense to pay the collection debt before you can afford to do so comfortably.

Negotiating a Deal

When you decide to pay the collection debt, you should contact the collector to see if you can negotiate an agreement. Since collectors buy debt for pennies on the dollar, they are often open to negotiating a reduced settlement. Some collection agencies will also offer to take the record off your credit report if you pay the debt, although this is technically illegal. Have the collector send you the terms of your settlement in writing. You may need to use this letter if the debt resurfaces.

Preventing Collections

Because collection agencies buy such a wide variety of debts, debt collections are common occurrences. Medical collections are especially common because of policies that leave the consumer ultimately responsible for medical bills even if the insurance company was supposed to cover the expense. You should always pay a debt that is in danger of being sold to collections (even using a credit card or if the debt is incorrect) to prevent damage to your credit reports. You can continue your dispute after the debt has been paid. People also commonly end up with collection debts when their bills are sent to an incorrect or old address. Be sure to track your bills closely and file a change of address form with the post office when you move.

Being contacted by a collections agency can be scary and overwhelming. If you take a step back, read your rights, and think about your options, you can take control of the situation. Credit.com is here to help you get your finances back in order.


  • Susan

    I have medical bill that has gone to collections and I have been making regular payments for over a year. The original balance is now down to $675. The collection agency has added over $2200. for legal and other fees. They are demanding $450. per month which is causing me to fall behind on my mortgage. What are my options?

    • http://www.Credit.com/ Gerri Detweiler

      Collection fees can increase the amount you owe, but this sounds like it may be excessive. (What are the “legal fees” for? Have they sued you?)

      I’d suggest you file a complaint with the Consumer Financial Protection Bureau and check with your state Attorney General to see if they can clarify what kinds of fees can be added to collection accounts.

  • http://www.credit.com/ Credit.com Credit Experts

    Who did you sign up for a class with? Do you know the school’s policy? And do you have documentation of when you notified the school that you would not be taking the class you signed up with?

  • Kaisei

    You signed up for a class and took a spot that could have been filled by a paying student. They are well within their rights to demand that money even though you didn’t attend the class. Unless you reported to them that you were not going to attend prior to the class starting then they will require your money and first born son.

  • Cheryl

    I am in. Florida and a year ago I needed a new electric wheelchair so I contacted bcbs of IL, they told me who to go to a provider in their network ,they ecieverd my prescription for the chair early February, they came and did the home visit middle of February, got approval from bcbs in March, they ordered the chair from quickie in March, chair was shipped via ups in March, received by medical company April 2nd I believe then delivered to me next day. They billed bcbs of IL they day they dropped the chair off to me, bcbs was cancelled April st. Bcbs denied and said they have to go by the date medical company put on Bill as claim date, the medical company refused to re-bill with a different date such as approval date, order date or ship date. Spent months on phone with them trying to resolve this but they would not budge. Our new insurance would not cover it as they are out of network…now a collections company is calling. I’m very frustrated and at a loss.

    • http://www.Credit.com/ Gerri Detweiler

      Cheryl – I am at a loss myself. Sounds like you’ve been caught in the byzantine world of insurance billing. There are attorneys who specifically handle health insurance claim disputes. Have you tried reaching to one of them?

  • http://www.Credit.com/ Gerri Detweiler

    It’s hard to say because I don’t know exactly what you mean by posting as a new debt. Does it list the original date of delinquency?

  • http://www.Credit.com/ Gerri Detweiler

    I suppose anything is possible, but remember that a collection agency would have to pay the bureaus to monitor their accounts this way, and quite honestly I’m not sure that they would want to take on that expense for debts they may or may not collect.

  • http://www.Credit.com/ Gerri Detweiler

    The open date and the last reported date are not really the important dates here. The thing you need to confirm is the original date of delinquency – the date you fell behind with the credit card issuer. If that is not reported, then I suggest you disputed with the credit reporting agency. The CRA needs that accurate date in order to know how long to report it. Read: A Step-By-Step Guide to Disputing Credit Report Mistakes

  • http://www.Credit.com/ Gerri Detweiler

    I am not aware of any specific requirements that they notify you in a particular way before sending an account to collections. My understanding is that generally if the bill is unpaid it can go to a collection agency. However, there may be state laws that apply, so you certainly could contact your state attorney general’s office for more information. You could also consider filing a complaint with the Consumer Financial Protection Bureau which is looking into collection practices.

  • http://www.Credit.com/ Gerri Detweiler

    If you gave them authorization to take money out of your account (which we never recommend) then it may be legal – depending on the authorization you signed. Do you still have a copy?

  • http://www.Credit.com/ Gerri Detweiler

    A collection agency that is collecting on behalf of the creditor may still report the debt as a collection account.

  • http://www.Credit.com/ Gerri Detweiler

    Yes check your credit reports. This is a situation where you may want to spring for three bureau
    credit monitoring for a few months. If it does show up on your credit reports, you may have a case for credit damage so keep good documentation.

    • Jesse

      Thank you so much for your reply I will keep a close eye on my credit report

      • http://www.Credit.com/ Gerri Detweiler

        You’re welcome. Let us know how this turns out!

  • Meg

    How do I know if the collection company “owns” my debt now or if is indeed negotiating on behalf of the original credit card company? Do I have a right to know that information?

    • http://www.credit.com/ Credit.com Credit Experts

      Meg —

      You can call the original creditor to see whether it sold the debt to the collector you are talking with, or you can check your credit reports. (There are also some other ways to verify, and we wrote about it here: How to Figure Out Who Your Debt Collector Is)

  • Lee

    will I receive a 1099 from the collection agency in 2014 when I paid $14790.00 for voluntary surrender of two vehicles. thank u

    • http://www.Credit.com/ Gerri Detweiler

      I have no idea if they will send one or not, but the IRS says cancellation of indebtedness income should be reported whether or not you receive the 1099-C.

  • Gina

    On Feb 5 ,2015 I received a letter from a collector company for the amount of $5,000. They actually went after me because the original owner of the debt filed bankruptcy and I was the co-signer.
    My question is, I know it will stay on my credit for 7 years, so does it make a difference if I pay or not?
    I called them as soon as I got the letter and they told me that everything I said would be used to collect the debt, to be honest I don’t remember what I said that could hurt me, but can the sue me?
    How should I approach this situation. They said that if I paid in full I would get 50% off, but I read that they can re-sell the debt to another agency, so I would be back to square one.
    Help please!
    Thank you

    • http://www.Credit.com/ Gerri Detweiler

      Your first step should be to find out if the statute of limitations has expired. If it has, then you can decide whether you want to negotiate or just wait until it comes off your credit reports. If it hasn’t, then you may want to negotiate. 50% off isn’t a bad deal but be sure to get it in writing – stating that with that payment it will be paid in full – before you pay them. Then keep that documentation. if you have proof that it was settled then if they try to sell the balance you can dispute it with the new collector. Also keep in mind that you may owe taxes on the cancelled amount. A couple of articles you’ll want to read:

      Does Your Old Debt Have an Expiration Date? and
      What is a 1099-C? Your Top 11 Questions Answered

  • Surya

    I received a notice from a debt collector on 2/10/2015 for a medical bill of service date 10/22/2014. I have paid entire amount due immediately after receiving the notice. I also signed up for credit monitoring and didn’t see anything being reported until today (2/21/2015). Does this mean that it won’t be reported? or Could it be reported, but not showing up yet? Please let me know.

    • http://www.credit.com/ Credit.com Credit Experts

      It may be too soon to tell. But it may not be reported. Some collection agencies do not report immediately. Your credit-monitoring service should alert you if it does show up on your report.

  • barbara

    received a letter from a collection agency said I could settle my debt for 50% what is owed to send payment by Feb 28th send a check this morning. received a letter tonight from the credit card company wanting to settle for the same amount. I called them.
    they said the collection agency sent back the debt to them. I paid them over the phone. the credit card company said the collection agency would send back the check I sent today. could take up to two weeks to receive it back. called the collection agency and they said the same thing. should I still stop payment on that check.

    • http://www.Credit.com/ Gerri Detweiler

      It is your call. If I were in your shoes, I’d personally feel safer stopping payment but you’ll have to decide whether you are willing to pay the fee.

  • jess

    Hi, I have spent over $2000 in medical bills for my son. Some how physician charges were overlooked and not paid due to how their system is set up. The amt owed is on $67, but they sent it to collections. The collection agency claims that they haven’t reported it yet. So my question is if I pay today will it never show on credit score? If I pay the hospital they said it could take a couple weeks to clear It with the agency. Who should I pay? Does the lack of payment to Hospital get reported also from the hospital?

    • http://www.credit.com/ Credit.com Credit Experts

      Jess —
      Ask them to please put in writing that they will not report it if you pay it immediately, and then do it. (You can also check your credit reports to add if it is on there yet.
      Here’s how to get your free annual credit reports.

      • jess

        Great thanks. I paid the $74 To The Hospital Instead of the collection agency. I stayed on top to make they updated to a zero balance. The agency is mailing me a letter stating that they did not report it and will not. However, you’re right I should check our report in a month to make sure “)

  • Gerry

    I currently have a debt in collection that is suppose to be schedule to record till Dec 2018.

    My question, if I pay a monthly payment, say $20, will the recording still be recorded until the 2018 with a remanding balance or does the my whole balance need to be paid off before it’ll will be taken off record?

    • http://www.Credit.com/ Gerri Detweiler

      It must be removed then regardless of whether it is paid, partially paid or unpaid.

  • Derek

    In September I found a pest control company on Yelp
    based on the glowing reviews and purchased a $50 for $30 voucher to have them
    look at bugs we were finding in my daughter’s bathtub. They came out and
    immediately knew what they were, drain insects, and they treated for
    them. The invoice had said carpenter ant treatment but it was scratched
    out and we were charged $125. The $50 voucher was applied and
    we paid the remaining balance. Several months later we received a past
    due invoice, I believe this was in late December. I called and spoke with
    a woman on the phone about the letter and she mentioned there was an upgrade in
    their system and it was causing problems and not to worry about it. She
    was very friendly and I figured it was a mistake they recognized and didn’t
    think anything of it. Now 3 months later I get a 2nd letter
    saying I have been turned into collections!? If I was turned into collections, what are my options. I would never risk a negative mark on my credit for $200?? This is completely unacceptable.

    • http://www.credit.com/ Credit.com Credit Experts

      How frustrating this must be for you.

      Do you have anything in writing to show that you paid? (If so, you may be able to solve this before it is goes on your credit report.)

      First, ask the collector for a “validation of the debt” (you have 30 days from their initial contact to do this.) This will come to you via postal mail. There’s more information here: The Ultimate Guide to Debt Collectors.

      And while we cannot advise you to pay money you don’t believe you owe, you would not be the first person to decide it was better to do that than risk damage to a good credit score.

      • Derek

        I would definitely just pay $200 vs risk damage to my credit. I may have jumped the gun as I was pretty upset, only left to think about it over the weekend. I spoke with the owner and he apologized and said he cleared the account. However, this is what I was told in December. At least I now have it in writing. Thanks!

  • sarusa sarusa

    hello

    today i get colleciton alert from my privacy assist that i need to pay 100$ ,
    i never received any latter from the collection company .
    i called to find out what exactly the debt about, and they told me the debt from
    centurylink (internet company) that i didn’t returned the modem , this is not true

    i send the modem in April 2014 .they said they send me twice in June 2014 a letter that i never got . they told me that i need proof that i send the modem , but i don’t find the tracking number . i go to UPS to try to pull it out , but they keep only six mont back . what i need to do ???

    • http://www.credit.com/ Credit.com Credit Experts

      Sarusa —
      Without proof, this becomes a he-said, she-said sort of augment. It sounds as if perhaps the modem was never received, and you cannot prove it was sent, which is a problem. Without evidence the modem was sent, you could be held liable for the return of the modem. Not paying it — even though you sent the modem — could result in damage to your credit score, the risk of being sued and additional fees and penalties that could add significantly to the debt you now have. We wish we had better news.

      • sarusa sarusa

        hello again
        yesterday i put it in dispute just to figure out what I’m doing .
        i don’t care to pay the debet i just wanna to know if the collection company can clear it from my credit score after i pay them.
        and if i can pay-them after i did dispute . i have good credit i don’t want its goanna affect on my credit score, especially for someting that i didn’t did .
        what recommend me to do ?
        thanks

        • http://www.credit.com/ Credit.com Credit Experts

          You would have to ask the collector that question. (And if they agree to, get that in writing and THEN pay.) But yes, a collection on your credit report will hurt your score.

  • VTfarmer

    Hello, I let a small bill ($95) slip through the cracks and received a notice from a collector today. I paid the amount immediately and then emailed them to ask that they have it removed from my credit report. Do collectors every do this? I have basically good credit and we are trying to buy a house right now. Is there anything else I can do?

    • http://www.Credit.com/ Gerri Detweiler

      Unfortunately, no they don’t have to but some will not report it if you pay it right away. Keep an eye on your credit and keep your fingers crossed.

  • Eve

    I have a medical bill that was sent to collections about a year and a half ago. I wasn’t able to pay at the time, but now I am trying to get on my feet and start paying what I owe. Problem is, I’ve moved several times since the original communication via regular mail took place, and in the process I misplaced or lost all of the correspondence. And it sounds stupid, but I do not remember the name of the collection agency that has my bill. How do I find out who do I owe?

    • http://www.credit.com/ Credit.com Credit Experts

      Eve —
      Here’s a resource that may help: How to Figure Out Who Your Debt Collector Is

      • Eve

        Thanks! I got my credit report from Experian, and that bill/account isn’t even listed on there. What would be my next step?

        • http://www.Credit.com/ Gerri Detweiler

          Do you know who the original medical provider was? Can you try them?

  • Rick Thomas

    I bought a self test mold kit and it came up with mold. I spoke to my land lord and she said yes I can break out of my lease. They got a specialist in and found no mold. SHe has no negated on that and telling me I must pay to break my lease early as I had already setup a new place. If I refuse to pay the $522 will her verbal say so stand up if they take me to court or collections.

    • http://www.Credit.com/ Gerri Detweiler

      Rick – I have no idea how this will play out. It sounds like there are a couple of problems here – conflicting test results and a verbal agreement to let you move out. It seems it could go either way and possibly drag your credit down in the process.

      I suggest you talk with someone familiar with landlord tenant laws in your area.

  • Diego

    In Remarks section of my credit report say Canceled by credit grantor,what exactly this means? Thanks

    • http://www.Credit.com/ Gerri Detweiler

      It means the creditor closed your account.

  • http://www.Credit.com/ Gerri Detweiler

    Was the address they had for you at the time your correct address? By “on a ship” were you deployed on active duty?

  • http://www.Credit.com/ Gerri Detweiler

    We have an article coming out on this next week but basically there is no harm in requesting it. Hopefully they will still run it through the normal channels. Do you think it’s inaccurate in any way?

  • Andrea

    I recently had a debt removed off my credit report. That collection agency than sold my debt and not even 2 months after it was taken off my report another collection was put on with the same amount just different agency. They didn’t even contact me at all and just put it straight to collections. Is there anythign I can do?

    • http://www.Credit.com/ Gerri Detweiler

      You didn’t really explain how or why it was removed the first time. If you disputed it and got it removed you can do the same thing again. It’s not clear whether it is inaccurate or what the circumstances were that led to the removal.

  • Erica Thomas

    I had a credit card when I was 18 and it was through elan financial services. I was honestly irresponsible and let it go to collections. Well now it’s four years later and I was trying to get a car loan. I was told I could only get a car loan with a co-signer and I do not have one. So I decided to pay off the $779 I owe. What is the best advice to pay it off? Who should I contact? Will it raise my credit score? Will it fix my chances of getting a loan without a co-signer?,

  • Mary Cerna

    what happens when and collection agency put a lein against your house

    • http://www.Credit.com/ Gerri Detweiler

      They are trying to protect interest in your property if you sell it. But it doesn’t mean they can force you to sell.

  • Richelle Mulka

    I’m retired and have only my Social Security of $1065. a month to live on. I own my 1969 model mobile home (renting lot) and a 1996 Chevy pick-up and my clothes and furniture. The last of my savings went to improving my rental lot (the mobile home park is built on swamp land) since my home was tilting and sinking in the muddy rental lot. I’ve not been well and am not up to working anymore,I struggle most days to even breathe. Now, I’m behind about $12,000. on credit card and medical bills, don’t have enough anymore to make even minimum payments. I contacted a bankruptcy attorney who was good enough to listen to me and took down my financial figures, he said I couldn’t afford a bankruptcy and since I have nothing of value there’s nothing my creditors would want. He say they can’t touch mu Social Security because it’s Federal funds. Where do I go now ? Running out of things to sell, I can’t afford to live much longer at this rate. Any ideas? Any hope?

    • http://www.Credit.com/ Gerri Detweiler

      I am not sure I understand your question Richelle. Are you still paying these bills? It sounds like the attorney suggested you can’t afford them. Sometimes it is impossible for consumers to pay. You could contact the creditors and let them know that you’ve met with a bankruptcy attorney, you can’t afford to pay and that you have no assets for them to go after. You might want to put those requests in writing. Another suggestion may be to talk with
      Legal Aid though it sounds they will probably say the same thing.

  • Carolina Hernandez Elias

    Hi. We moved out in March of this year of an apartment in which we had problems since day one. The landlord only showed us pictures of the property before move in date claiming they were fixing it. When we got there it was infested with roaches, then a rodent, and we had 3 water leaks from the upstairs apartment. Because of my husband’s EXCELLENT credit…we were able to get something called sureDeposit…in which you pay a nonrefundable $175 fee and it covers $1000 in damages when you move out. We ended up negotiating with the apartment owners to let us off the lease early WITH no FEES and they agreed, since I threatened to sue them. So we moved out…and we got a letter in the beginning of April saying we owed them $1,595 for things they had to fix…which most…like the flooring was because of the leaks…that were NOT our fault. Anyways…we emailed the owner asking why they were charging us when our deposit covered $1000 and also they had told us we weren’t to be charged especially since they did more damage to us inthe time we lived thgere….yesterday this debt showed up on my husband’s credit report. Weren’t we supposed to get a notice or something before it got sent to collections…it hasn’t evenbeen three months sincewe moved out…and as soon as we received the letter we tried contancting the,,,….but they sent us to collections instead of answering

    • http://www.Credit.com/ Gerri Detweiler

      Talk with a consumer law attorney. You may have a case for credit damage. Visit the website of the National Association for Consumer Advocates if you need help finding one.

  • courtney davis

    hello,

    i moved out of my apartment in december of 2013 because i went active duty in the military. i terminated all of my utilities and gave each company a forwarding address for my last bill, which i did not receive from my cable company. about nine months later, i called the same cable company to inquire about any money i may owe, because i was considering their services at my new location. they told me at least three separate times that i did not owe any money. about two weeks ago, the debt was reported to transunion by a collection agency. although i now have a new address, i have maintained the same address on my driver’s licence and credit cards since september 2013 (which is still valid), and i have had the same phone number for almost five years. i have not contacted in writing or by telephone by the collector at all. i was under the impression that a collector cannot report a debt to a credit bureau unless they have successfully contacted you and/or provided you an opportunity to settle the debt. is this not true?

    • http://www.Credit.com/ Gerri Detweiler

      The federal Fair Debt Collection Practices Act doesn’t directly address that though there may be state laws that do. But I would suggest you dispute it with the credit reporting agency and file a complaint with the CFPB.


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