How to deal with debt collectors

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If you receive a call from a collection agency, don’t panic. Pause and make a plan to protect yourself, handle future calls and pay off your debt.

It’s important to know your rights when it comes to debt collection, especially if you have defaulted on a loan. You should be aware of what a debt collector can and can’t legally do so you can you to effectively handle any collection attempts.

5 ways to deal with debt collectors

If you’re dealing with a third-party debt collector, there are five steps you can take to handle the situation.

1. Be smart about how you communicate

Debt collectors will continue to contact you until a debt is paid. Ignoring debt collectors pursuing valid debts can damage your credit report.

You should listen to them, but don’t volunteer any information during initial communication. Don’t confirm that a debt is yours, and don’t share any details over the phone. Instead, listen carefully to the debt collector and keep a record of the conversation for your reference.

2. Get information on the debt

Without admitting the debt is yours, get information from the debt collectors before you make a plan to deal with it. A debt collector is legally required to provide information on your debt, including:

• The original creditor’s name and contact information
• The amount of debt
• When the last payment was made
• How you can dispute the debt

If the debt collector isn’t able to provide this information over the phone, it must send it in writing within five days of initial contact with you.

In addition, certain consumer debt has a “shelf life” in which a creditor or debt collector can legally sue you for the debt. This is called the debt’s statute of limitations, which varies by state and type of debt.

If the statute of limitations has expired, the debt collector can no longer sue you. Admitting a debt is yours may reset the clock on old debt, so never confirm it with a debt collector — even if you know the debt is yours.

3. Get it in writing

Legitimate debt collectors are required to send you a letter in the mail detailing your outstanding debt that includes all of the previously mentioned information. You should also get details about how to dispute the debt, which can come in handy if the debt in question isn’t yours.

4. Dispute a debt that isn’t yours

If you don’t think the debt is yours, send a written dispute letter within 30 days. At this point, the collector is legally required to discontinue communication and collection efforts until it provides you with a written verification for the debt.

Make sure you date your dispute letter, keep a copy for yourself and maintain proof it was sent. For example, mail it via Certified Mail — or if faxing your letter, retain the fax confirmation indicating the time and date sent.

5. Try settling or negotiating

After you’ve received a confirmation letter, verified the debt is yours and checked that it is still within its statute of limitations, see if the debt collector will settle for a portion of the cost if you pay immediately. If the collection agency wants the full amount due, ask if you can set up a payment plan.

How debt collectors get your information

When you haven’t paid a debt to a creditor, it may sell it to an agency or hire an agency to collect the debt on its behalf. The responsibility of collecting the debt then falls to the collection agency.

The creditor will likely pass along some of your personal information — like your address and phone number — so the collection agency can contact you. If this information is incorrect, the agency may also try an internet search to find your current contact information.

If a debt collector got your information from the original creditor, it will have your personal details, the amount owed and the company you originally owed. If you’re dealing with a legitimate debt collector, it should have no problem sharing information related to your debt.

Understanding your rights when dealing with debt collectors

In accordance with the Fair Debt Collection Practices Act (FDCPA), the Federal Trade Commission ensures all debt collectors follow debt collection laws. It’s important to be aware of these laws to stand up to any debt collector that violates your rights.

• They have rules for contacting you: Debt collectors are limited on when they can call you — typically between 8 a.m. and 9 p.m. They are not allowed to call you at work.
• They can’t lie to you or harass you: Debt collectors can’t make you pay more than you owe or threaten you with arrest, jail time, property liens or wage garnishment if you don’t pay. Wage garnishment might be legal in your state, but your debt collector will need to take you to court first.
• They must provide you with information about your debt: They have to tell you a few key facts about your debt. This includes how much you owe, who the original debt was owed to and what you can do if the debt isn’t yours.

If you feel like any of your debt collection rights are being violated, you should report the debt collector to the Consumer Financial Protection Bureau or your state attorney general.

Understanding the statute of limitations

The statute of limitations, which specifies how long you can be sued for a debt, begins on the day the first payment is missed or when the last payment was made.

If you are waiting for the statute of limitation to expire, be careful not to reset the clock on old debt. This could happen if you make a payment or agree to one without researching the terms of the debt. Doing so may restart the repayment time frame of that old debt all over again.

However, ignoring legal notices can result in judgments that give collectors additional tools to recover the debt owed, like wage garnishment. Seek out professional help to avoid accelerated collection action.

How to spot a debt collection scam

Having debt can mean you are open to debt collection scams, but you could encounter scams even when you do not owe anyone money. To make sure a debt collector is legit and avoid debt collection scams, watch out for these common signs:

• Watch your mailbox: A validation letter is one way to make sure you’re dealing with a legitimate debt collector. If you only received a phone call from an alleged debt collector, request a validation letter.
• Verify your details: Even if the company is legit and the debt is real, there’s a chance the obligation may not be yours. It could be the debt of someone who shares your name, or it could be from an act of identity theft.
• Make sure you can pay the way you choose: If the person on the phone claims you can only pay immediately through a wire transfer or a prepaid debit card, you are likely dealing with a scammer.

Bottom line

Knowing the steps to take if you get a call from a debt collector can help you deal with it effectively. There are rules that debt collectors must follow to collect payment on old debt, and knowing your rights as a consumer will help you properly handle the situation.

That said, debt collection is an issue that shouldn’t be ignored. If the debt is legitimate, but you are unsure whether it’s past the statute of limitations, contact a lawyer or finance professional to advise you on the steps to take before taking any action or engaging in further conversations with debt collectors. You can also consider debt relief if you have debt from multiple accounts piling up.