Collections Calling? 6 Things To Do Before You Pay a Debt Collector
You might know that panicky feeling when your phone displays a number from an unknown caller. Most times, you send it straight to voicemail. But what happens when you actually pick up and it’s a debt collector?
You may be tempted to hang up, but it’s probably better to face your fears – and your debts – head on. But not without a plan.
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“For many, debt is deeply personal and emotional, shaped by past experiences, beliefs about money, and fear of making things worse,” said Kiki Jacobson, licensed mental health therapist and financial educator at Nour Counseling & Consulting.
Before you take action you might regret, stop and follow these expert tips.
Step #1: Verify the Debt
Jacobson recommended looking into whether or not the debt is real by checking your credit reports from Experian, TransUnion and Equifax. Does the debt appear on your credit report or is it a scam?
The debt may have been sold to a collections company from your original creditor; if that’s the case, the debt collector should be able to verify the original source.
“You can also request a debt validation letter from the collector. It is not uncommon for collectors to mistakenly pursue incorrect or outdated debts,” said Jacobson.
Step #2: Know the Statute of Limitations
The statute of limitations for the collection of many debts lasts three to six years, depending on the state where you live and the type of debt, according to the Consumer Financial Protection Bureau.
“Each state imposes a statute of limitations that defines the period during which a debt collector can pursue legal action to enforce repayment,” Jacobson explained.
Making a payment may restart the clock, which would extend the amount of time the creditor can try to collect on the debt.
“Before you make a payment, consider how old your debt is, whether it can still be legally collected, and how it’s showing up on your credit report,” cautioned Hillary Seiler, founder of Financial Footwork.
Step #3: Stop the Calls
Whether you owe the debt or not, you might want to keep creditors from calling you. This is within your rights under the Fair Debt Collection Practices Act, said Erica Sandberg, money expert at CardRates.
“If you don’t want any calls and only want to communicate via email or letter, you can request that. If you don’t want to have any communication whatsoever, you can send them a letter,” she explained.
Step #4: Figure Out Your Budget
If you’ve validated that the debt is real and the collector is within their rights to pursue it, you might wish to pay it in full, make a partial payment or enter a payment arrangement. Before you do, though, make sure you can afford it.
“Collectors can be very persuasive,” said Sandberg. “It can make you nervous. So, you want to get it done with and pay the debt.”
But this may not be the best move for your budget or your credit score if you have other bills to pay.
“Let’s say you’ve got rent or mortgage [payments]. That’s a more important bill than an ancient collections account,” she said. “If you’ve got a car payment and you have to get to work, you don’t want to jeopardize that loan, either. These are the things that come first.”
Jacobson agreed. “You want to ensure you are not having to deal with long-term consequences to alleviate short-term distress.”
Step #5: Understand Your Options
If you need help, a professional credit counseling agency can help you prioritize your expenses and understand your options.
“When clients feel grounded and informed, they’re far more equipped to advocate for themselves, make thoughtful choices, and ultimately regain a sense of control over their financial lives,” Jacobson said.
Step #6: Negotiate a Settlement
Once you’ve decided what you can afford and which debts you can knock out to improve your credit over time, it’s time to negotiate.
“If a collection is valid, never just pay the full amount. You have room to negotiate a lower payment,” Seiler said.
Sandberg called 50% of the total amount owed a “good starting point” for negotiations. You can start lower if you have to, because you want to leave yourself enough room in your budget to accept a counteroffer.
Another common alternative is a “pay-for-delete” agreement, where the creditor removes the collection activity from your credit report in exchange for full or partial payment. You can also ask the account to show as “paid in full.”
Once you’ve negotiated an agreement, get it in writing, Seiler said.
“Once you’ve made a payment, always get proof of the payment from your bank and from the collections agency,” she said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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