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Nobody likes a debt collector. But debt collectors, and the companies they work for, serve a legitimate purpose in our economy. Have debt collectors used harassing, and illegal tactics? Absolutely, collection agents stepping over the line has led to how the industry at large is viewed today. But rather than warn you about how debt collectors misbehave, I want to focus on the more legitimate and common tactics collectors use — that work.

Debt collectors have a fairly limited set of tools at their disposal when trying to get you to pay legitimate debts. And their job is complicated by the fact that the majority of people they are trying to contact have low — to no — ability to pay for the past, when struggling to meet their financial needs today.  The collection industry is challenged even further by the fact that most of us want to avoid having any contact with them.

The Collection Confrontation

Every phone call and collection notice in the mail is a confrontation. I do not mean that in the sense of having an argument. I am coming at this from the perspective that you are being confronted with the reality of your past or present financial reality. And each of us handles confrontation differently. Now consider how hard it is for a debt collector to get in touch with someone to talk about resolving the bill, and that they are trying to get a payment (or commitment to pay) on every call, or with every letter. You can feel stress at every step. And stress is a collection tool.

Collection calls are a stress – even when you do not pick up the phone. The frequency of the calls is enough to cause some people to pick up and agree to some form of payment – just to get the calls to stop. This is often the wrong way for you to handle accounts in collection, especially if you owe on more than one collection account. But collectors typically only have one of your accounts, and it is not their job to care about anyone else’s bill – just the one in front of them.

With collection calls, the idiom “the squeaky wheel gets the grease,” certainly applies.

When you do answer the phone, what a debt collector says, or even what you say to a debt collector, can often introduce more pressure to the situation. You may be confronted by a debt collector who is overly abrupt, and lays on the aggressive “you need to pay your balance on this bill today” approach. Sometimes it is not even what a collector says, as much as how something is said. The tone and cadence of the person confronting you on the other line is a tool, and probably the best tool a debt collector in a call center has. The best debt collectors I know recognize this.

I asked a former debt collector, Jared Strauss, about how much of an aggressive approach debt collectors took when he was actively collecting debt. His reply was “Back when I was in the collection industry we had a term called ‘burning’ accounts. What that means is the debt collector would become overly aggressive and, in turn, alienate the consumer. It’s a foolish approach that generally didn’t benefit anyone.”

Debt Discounting & Reduced Payments

There are different stages to collection. Once you start hearing from a collection agency, you are typically at least a few months late on paying a bill. Depending on the type of bills you owe, your current financial hardship and other factors, a debt collector may offer to discount your debt. Creating a situation where your debt suddenly becomes more affordable to you is another tool debt collectors have.

Whether or not, and by what amount, a collector will reduce your debt will vary from one account to the next — and from one person’s unique circumstance to the next. But it has become more common for collectors to offer a lower payoff when they can see the extent of your financial hardship. Collection agencies may simply mail an offer to settle your account for less than what you owe. So why would a collector offer a discount?

Balance reduction offers from debt collectors are sometimes the best opportunity they have to get paid. But only take them up on the offer if you can afford to take advantage of discounts. You should also know that you do not have to wait for an offer from a debt collector. You can bring up the topic yourself, plan your offer ahead of time, and negotiate with your debt collectors.

It is best to pay any debt discount offers in a single payment. But monthly payment options are offered, too. And sometimes using the multi-payment option is the only way you can afford to accept the discount. And of course, make sure you get the agreement in writing. Just be sure any payment agreement you reach is not a stretch for you to pay. Missing payments, when you have a settlement agreement to pay less, nearly always means losing the discount.

Smart Debt Collectors

Technology tools have greatly enhanced the ability of debt collectors to scale their businesses, and to better target people who are more likely to have the ability to pay. Technology is a very effective tool for the debt collector.

Debt collectors have the ability to view your credit reports in real time. Information on your reports helps to assess how collectable you are. If you are current on mortgage; making car payments; continuing to pay some or all credit card bills, you appear more collectable. Compare that to someone whose credit reports reflect a current car loan, but five other accounts that have not been paid for roughly the same amount of time. Collectors are able to work smarter by focusing their time and resources by collecting from the former.

Many collectors use sophisticated programs that take all of the information they have, all the way down to the affluence of your zip code, in order to assign a collection score to your account. Accounts with higher scores will have the most collection focus, while lower collection scores can make you appear less of a collection target. But you should know that you may not always look that way.

If your inability to pay your debts is more of a temporary setback, technology collection tools may be watching. Debt collectors can set alerts, or otherwise access updates to your credit report. If any new information suggests your situation has turned around, you can suddenly appear to be more collectable.

Collecting in the Courts

Using the courts, at least for many accounts in collection, is the tool used last by debt collectors. And it is a sledge hammer. There is nothing subtle about a sheriff or process server showing up at the door serving you papers. Most of us would be happy to go back to frequent phone calls, or speaking with a collector with no debt-side manners at this point.

Other than the “buy to sue” type of debt collector, and a couple of banks with a reputation for suing, most collection outfits would prefer to avoid the courts. But what is the point of carrying around a sledge hammer if you are not going to use it? So, use it the debt collector will, but typically not until repeatedly trying other tools first.

Other than illegal and abusive collection tactics, being sued for a debt is the ultimate pressure. But people faced with a collection lawsuit, like other collection stresses prior to being sued, do not respond well to the confrontation. It is estimated that more than 90% of collection lawsuits end in a default judgment. This typically means the consumer did not respond to the courts.

A clear indication your account may be headed to the courthouse is receiving a collection notice from an attorney licensed in your state. If this occurs, you still have options to set up payments, or to look at settling the debt (attorney collectors often offer debt discounts too, but often not for as good a savings).

If you are sued, but stretched too thin to work anything more into your budget, it may be time to consider getting a fresh start though bankruptcy. Bankruptcy is a tool you have that can be used to avoid wage garnishment, bank levy, or a property lien, as each may be applied in your state.

The above tools are used by legitimate debt collectors every day. Some use these tools more effectively than others. While the focus above is on the most common debt collection tools, some collectors step over the line. It can be helpful to get familiar with tactics some collectors use, but shouldn’t, and to learn how to identify what kind of debt collector you’re dealing with.

Whatever the reason you found yourself unable to keep up on bills, you have options and tools to confront collection accounts, and on your own terms, at virtually every turn.

Image: kimberrywood

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