For most of us, debt is a fact of life. That debt can come in many forms: a mortgage, student loans, credit card bills, and (for some) payday loans. With nearly 80 percent of Americans living paycheck to paycheck and, according to the Federal Reserve Board, nearly 40% of American adults unable to cover a $400 emergency expense, it is easy to become overwhelmed by debt. When this happens, you may receive a call from a debt collector.
“The first thing that’s going to happen is that the creditor itself is going to contact you to try to get payment,” explains Robert Foehl, Executive-in-Residence for Business Law and Ethics at Ohio University. If the debt has gone unpaid for too long, the creditor may sell the debt at a discount to a debt collection agency. This agency may then attempt to collect on the debt.
If you’re being contacted by debt collectors, it is important to know your rights and to take steps to make sure debt collectors do not take advantage of you. According to the Fair Debt Collection Practices Act (FDCPA), a debt collector may not lie to you, harass you, contact a third party unless it is to obtain your contact information, or reach out to you before 8 a.m. or after 9 p.m.
First, make sure you are dealing with a legitimate debt collector and not a scammer. Warning signs include the caller claiming you owe money on a debt you don’t recognize, threatening you, asking for sensitive information, or pressuring you to pay them on a prepaid card. Before giving out any personal information, ask for the debt collection agency’s call back number and street address. Ensure this information is correct before proceeding. Additionally, you should review your credit report for any delinquencies or irregularities and get in touch with the original creditor to confirm who they sold the debt to.
Once you have confirmed the debt is yours, it is advisable to cooperate. Remain calm and polite. Assess the situation as best you can, and think about solutions. Is this a debt you can afford? If so, it may be worth paying now in a lump sum. Chances are good that if you can pay a lump sum, the debt collector will be willing to take a discount on the total amount of the debt.
Are there alternatives to debt collection? For example, in the case of a delinquent medical bill, the hospital may offer a financial assistance plan to spread out or reduce payments. You should also check the medical bill was correctly submitted to your insurance provider and that you have not been charged in error. Finally, you should find out if the debt is old enough to have passed the statute of limitations. If it has, that the creditor is no longer able to sue, but you do still owe the debt and it can remain on your credit report for up to 10 years
If you cannot afford to pay the debt outright, negotiate with the debt collector. Offer to pay a small fraction of the total amount. It is important to lowball your offer, as the debt collector will provide a higher counteroffer and you will need to compromise. However, you will have to pay tax on any forgiven amount of debt that is over $600.
If the collector is unwilling to negotiate and declaring bankruptcy is a viable option for you, mention this during your negotiations. The debt collector will be aware this may eliminate your liabilities and so may become more willing to compromise.
Finally, make sure you get everything you agreed upon in writing. This will protect you so that once you have paid the agreed-upon amount, the debt collector will not attempt to pursue you for the remainder. Remember: you have rights even when you are in debt, and you must fight to protect them.