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6 Important Things You Need to Know About Debt Collectors

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Illustration of past due invoices over red background
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By Michael Bovee

If you are getting calls and letters from debt collectors and want to resolve the debt, you need a plan. Your first priority should be developing a strategy that makes sense for you financially. You need to know your monthly budget and the amount of money you can commit to resolving collection accounts. And if you have more than one account in collections, you also need to know that not all debt collectors are the same.

1. You Can Work With the Original Creditor...

You can often work out some form of payment by calling your creditor directly, or by working with a nonprofit credit counseling agency. But when credit card payments go more than six months without a payment (sometimes sooner), calling your creditor often means being routed to a third-party debt collector. If your creditor tells you they cannot work directly with you; has not sold your account off to a bad debt buyer; and has already charged off your account, you will typically have to work with the debt collector they sent your account to.

Your strategy to resolve a debt can be adjusted depending on what kind of debt you have, and the type of collector you are dealing with.

2. ...Or a Third-Party Debt Collector

The collection industry is large. There are thousands of companies, big and small, working to collect billions of dollars of debt each year. Your strategy to resolve overdue bills can be adjusted depending on what kind of debts you have (medical debts, utility bills, etc.), and the type of collector you are dealing with.

Debt collectors that work directly with your credit card lender are typically going to be larger contingency collection agencies. They make calls and send you collection notices in an attempt to collect. All of which is motivated by the fact that they will get paid based on what they get you to pay. A common earned contingency fee is 15% of the balance they collect.

3. Debt Collectors Have Limits

All collection agencies have to follow federal and state laws when communicating with you. These laws protect you and limit things like when they can call, and what the collector can say. But contingency debt collectors also have limits set by your creditor. One of those limits is time.

Credit card lenders sending accounts out to an agency for collection do so with a "best collected by" date. When the date expires, your account is pulled back by the creditor, and the collector loses the ability to earn a fee. These collection contracts can be for as little as 60 days, or for several months. This fact is useful for you in the following ways:

There is indeed a sense of urgency for the contingency collector. That pressure they are putting on you to pay is also the pressure they have to beat the clock before they lose your account.
This type of collector is graded on their performance (how much and how often they collect), by your creditor. The agency cares about their performance because they want to receive future accounts to collect on from your creditor.

Individual collectors at the agency are often motivated by monthly quotas and performance rewards of their own.

These three elements can help you understand the motivations of this type of collector, while helping you plan and prepare to resolve your debts.

4. You Can Reach Out to Your Debt Collectors

You usually know who you are dealing with by the most recent collection calls and letters you have received. While you can contact the last known collector, I often recommend you call your original creditor and verify with them who they have the account placed with. Simply call the regular number on the back of your credit card (or on your original statement). Your call may get routed to the recovery department at the bank, but don't expect to resolve anything with them at this point. They have a contract with the debt collector, and will provide you the name and contact phone number to the agency. Try to verify the balance owed on your account during a call like this.

Making contact with you is one of the hardest things for a debt collector to do. When they do get someone live on the phone, they know they need to make the most of it. Not just because people avoid collection calls, but their agency also may be running out of time to collect from you. This is one of the reasons why debt collectors have earned the reputation of being pushy and abrupt.

When you pick up a call, or make one to a debt collector, their goal is going to be to get some form of payment, or commitment to pay, during virtually every call.

5. Your Collector Wants to Work With You

How you ultimately resolve a debt with a contingency debt collector is going to depend on: your monthly cash flow that can be used to make payments; the parameters the collector has to work with on their end; and even by the date on the calendar.

Setting up a payment arrangement you can afford given your monthly budget is not all that difficult. And if the collector can get you set up with a payment, they often get to retain the account while your payments are being made. This means your interests and the collector's are aligned when you are actively looking for a solution.

If you have multiple debts you are struggling to pay, are nervous or uncomfortable talking to a debt collector about payment options, or just want expert help, there are resources available.

I asked a nonprofit credit counseling group about what they would advise people do before tackling accounts in this stage of collection. Christopher Viale, President and CEO of Cambridge Credit Counseling had this to say:

Before committing any part of your monthly budget to paying down collection accounts, it's important to have a complete understanding of what your household budget actually is and what you can truly afford. We speak to people every day who make promises to debt collectors that they simply cannot keep. A budgeting session with one of our counselors is free and it can really help you get a full understanding of what you can and cannot afford before making any type of payment commitment.


6. Monthly Payments Aren't the Only Option

In many instances, if you cannot commit to a monthly payment, debt collectors are authorized to accept settlements. What your debt can be settled for when dealing with a debt collector is a moving target. The amount you can save from negotiating a lower payoff will have to fit within the collector's guidelines in most cases. And you need the money available to pay any deal you negotiate in a single lump sum, or over a short period of time.

You may be surprised by how simple it can be to call a collector and come to an agreement to resolve your account. If you cannot reach a deal that works for you on the first try, don't get discouraged. Try calling around the last week of the month. My experience shows that more affordable agreements are often available when a collector's or agency's monthly goals are not meeting expectations.

You can also time your efforts to resolve accounts with a debt collector using the "best collected by" expiration date. In one of your first calls with a collection agency you could ask "I am trying to come up with a plan to resolve my debt. I do not have a plan put together yet, but will be calling back when I do. Can you tell me the balance owed on the account now? And also, so I know who to call back, how long will you have this account for?" Not all debt collectors will tell you how long they will have your account, but many do. Knowing these dates can be useful for two reasons:
  1. You can set up payments with the collector before they lose your account. This prevents your account from going to another collector, or worse, being sued later.
  2. You can time your negotiations for a lower payoff with the performance goals of the collection agency.

When it comes to settling collection accounts, you may be tempted to hire a company rather than do it yourself. Before you do that, I recommend you find out what debt settlement companies don't tell you. Hiring a professional negotiator can often feel like the right solution, until you calculate the costs that come with the help.

There are certainly other details to consider when dealing with debt collectors. But the basics of resolving debts at this stage of collection are not complicated. If your personal finances are still too wobbly to commit to paying off collection accounts, don't allow yourself to get pressured by a debt collector. The "best collected by" date will expire and the debt will go back into the collection pipeline. If you are committed to trying to avoid bankruptcy, there will be options to manage your debt all along the way.

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A debt collector should only contact you when it is necessary to do so and when the contact is made for a reasonable purpose.

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