More than a quarter of Americans have a debt in collections, according to the Urban Institute.
If you’re one of them, you may experience an unpleasant barrage of letters and calls from a debt collector. While it can be tempting to decline the calls or toss the letters in the recycle bin, that can worsen the problem and even lead to a lawsuit.
So what should you do instead? Read on to learn how to minimize the damage and resolve a debt as soon as possible.
Assess the Situation
It can feel unnerving when a debt collector calls, but you don’t need to panic. It is important, however, to know the stakes before you enter into a conversation with them. If you aren’t sure, arrange to call the debt collector back so you can do some research. Whatever you do, you don’t want to ignore them altogether.
“Deciding not to pay attention to the calls, either because you don’t think you owe a debt or because you’re going through a hard time, or you’re embarrassed, that’s the worst thing you can do if it’s a legitimate debt collector,” says Robert Foehl, executive-in-residence for business law and ethics at Ohio University.
Know What Not to Say
During your first call with the debt collector, don’t confirm that you owe the debt, even if you believe you do. Oral confirmation can validate the debt or extend the statute of limitations for collections, says Jamie Hopkins, CEO at Bryn Mawr Capital Management.
You also shouldn’t share any personal information, such as your bank info, Social Security number or credit card data until you verify the person you’re dealing with. Fraudsters often impersonate debt collectors to scam consumers out of their money or steal their identities.
Understand What a Debt Collector Does
Typically, debt collectors are private companies or individuals hired on behalf of a creditor, such as a bank or a hospital, to collect a debt that’s gone unpaid for an extended period. They may also buy discounted past-due debts and try to collect them to earn a profit.
In either case, debt collectors are financially incentivized to collect as much as they can from debtors. They must, however, adhere to the Federal Debt Collection Practices Act (FDCPA), which prohibits unfair and deceptive practices such as harassment, public posts on social media about the debt and contact outside certain hours.
[Read: What Happens if You Don’t Pay Your Debts?]
Aside from trying to convince and pressure you to repay your debt, debt collectors can sue you — as long as a debt hasn’t passed the statute of limitations in your state. While lawsuits can be expensive and time-consuming for collectors, they may be worth it in certain cases, such as for larger debts.
If the debt collector wins a judgment against you in court, they may be able to recover the amount by seizing your assets (e.g. wages, bank account, etc.). If they don’t, however, they can only continue to pressure you to pay and report the debt’s status to the consumer credit bureaus.
Validate and Verify the Debt
So, what should you do first if a debt collector contacts you?
One of the FDCPA rules states that collectors must provide you with a written “validation letter,” which spells out the value of the debt, to whom they claim you owe it and since when. Ensure you receive that before taking any further steps.
Once you receive the validation letter, you’ll have 30 days to dispute it in writing. If you file a dispute, the debt collector must verify the debt.
You may also want to check if the statute of limitations is up on the debt. If it is, you still owe the amount but can’t be sued for it.
Prepare to Negotiate
Once you’ve confirmed that the debt is legitimate, start strategizing your negotiation strategy. That might mean a reduced upfront payment or an installment plan that works with your budget.
[Read: How to Make a Budget — and Stick to It.]
Figure out the amount you’d ideally like to pay and the most you’re willing to pay. From there, contact the debt collector, explain your situation and ask if they’re willing to work with you on the balance due. Most debt collectors don’t expect to be able to collect the full amount and see something as better than nothing.
If they make you an offer higher than your goal, counter it and try to work them down. In the end, you’ll ideally come to an agreement. But if not, it’s OK to hang up and go back to the drawing board. They may even come around once they see you’re serious about your final offer.
During this process, some debt collectors may try to threaten, bully or deceive you. If you encounter any misconduct, you can report it to the Consumer Financial Protection Bureau.
[Related:What to Do When You’re Deep in Debt]
Request No Further Contact
There’s no magic phrase to stop a debt collector but you can ask one to stop contacting you if you’ve had enough. Keep in mind, however, that even if the communication stops, the debt doesn’t go away.
“All that does is keep the debt collector from contacting you,” Foehl says. “It does not resolve the situation.”
If you’re wondering whether debt collectors can collect from family members, the answer is typically no — unless the family member is a cosigner on the loan. So you don’t need to worry that cutting off communication with the debt collector will lead them to harass members of your family.
Take Action to Prevent Future Debts From Going to Collections
Sometimes life circumstances cause bills to pile up, but there are steps you can take to minimize the chance you’ll have to deal with debt collectors again.
Erika Rasure, the chief financial wellness advisor at Beyond Finance, recommends creating a budget and committing to consistency. “A budget is a tool, not a fix-all. It’s only helpful if you’re consistent with it, so find one that works for you,” she said in an email.
You can also start regularly setting aside cash in an emergency fund, where even small amounts add up over time. That way, you’ll have reserves to turn to if an unexpected expense pops up again.
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How to Negotiate With Debt Collectors originally appeared on usnews.com
Update 05/31/24: This story was published at an early date and has been updated with new information.
