What Are Debt Collectors?
As the Consumer Financial Protection Bureau explains on its site, “a debt collector is generally a person or a company that regularly collects debts owed to others, usually when those debts are past due.” Debt collectors may include agencies or lawyers who collect debts or companies that purchase debts from creditors or other business, then try to collect them, the CFPB says. “These debt collectors are also called debt collection agencies, debt collection companies, or debt buyers,” the agency notes.
If you’ve fallen behind on your bills or a creditor mistakenly notes that you’ve fallen behind, a debt collector may get in touch, according to the Federal Trade Commission (FTC). Of course, there are rules for how this should be done, and as the nation’s consumer protection agency, the FTC’s job is to enforce the Fair Debt Collection Practices Act (FDCPA), “which prohibits debt collectors from using abusive, unfair or deceptive practices to collect from you.”
There are many important things to understand about debt collection. In this crash course, we’ll provide tips for dealing with debt collection while explaining how it all works.
The Importance of Credit
Whenever you miss a bill, that poses serious risks for your credit. And if a bill is sent to collections, that could damage your score even further. That’s because when your debt is sent to collections, you will see a new record appear on your credit report. This collection record normally remains on your credit report for seven years from the last 180-day late payment on the original account, whether or not you’ve paid 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 seven years. This is also true if a new record appears when your debt is sold to a new collection agency.
It’s a good idea to review the information a collection agency posts on your credit report carefully, as some collectors may report incorrect facts. If you’re not sure where your credit stands, we recommend viewing two of your credit scores for free on Credit.com. Checking your own credit scores will not affect them in any way.
Know Your Rights
Consumers have several rights under the FDCPA, which the FTC enforces. You can request that a collector 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 also cannot tell you that you owe more than you really do, use obscenities or tell you that you are guilty of a crime. During a workday, they may not contact you if you make this request.
What to Do If a Collector Contacts You
Once you have verified that the debt is accurate and have read your rights under the FDCA, you’ll need to consider your options. In most situations, you should negotiate a deal with the collector, pay the amount owed and begin to 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 those debts first. Keep in mind that this collection record will remain on your credit report for seven years, whether you pay it 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 often buy debt for pennies on the dollar, they may be 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 it is unclear if this is legal. Make sure to have the collector send you the terms of your settlement in writing. You may need to use this letter if the debt resurfaces.
How to Prevent Bills From Going to Collections
Because collection agencies buy such a wide variety of debts, debt collection is a common occurrence. Medical collections are especially common due to policies that leave the consumer ultimately responsible for medical bills even if the insurance company was supposed to cover the expense. It’s a good idea to 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. 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. But if you take a step back, read your rights and think about your options, you can take control of the situation.