Most people take out loans with the intention of paying their debts on time. Sometimes problems occur, and life gets in the way of that. You may not make payments because your income drops, or you may have entered into a debt you cannot afford. When this happens, the lender may pursue collections. If this occurs, it could impact your ability to make payments in the future and could mean a lender takes other legal action against you.

Understanding Debt Collections

Debt collection agencies are third-party companies hired by lenders. Sometimes lenders will sell your debt – the amount of money you owe – to these agencies for them to collect. Generally, a collection agency will put pressure on you to make payment, often trying to force you to pay the total amount owed. This most likely occurs around 180 days of being late on debt payments but can happen sooner.

Debt collections can be reported to credit bureaus. That means they can impact your credit score. Some collection agencies will remove the notation from your report if you pay them off. You may be forced to pay if you legitimately owe the debt.

Debt collection can come from a debt you enter into and do not make payments on as you promised to do so. This can include co-signing the loan if the other party fails to make payments. Some of the most common types of debt collection include:

• Medical debt
• Personal loan debt
• Car loan debt
• Student loan debt
• Unpaid utility bills
• Unpaid phone bills
• Credit card debts

Dealing with Collection Agencies

A reputable debt collection agency will contact you, explain what you owe, and offer ways to pay the debt. This often means following all debt collection laws, and they also typically are professional and do not make any threats to you.

All legitimate debt collection agencies will provide you with the information that you need including:

• Who the original debt was through, such as the name of the actual lender.
• The amount of money you owe, which may include late payment fees, interest, and other fees you owe.
• Information about how you can dispute the debt.

Most of the time, debt collectors will give you 30 days to dispute the debt in writing. After that point, you are responsible for the debt, and they can continue contacting you regarding the debt repayment.

Debt Collection Laws

The Fair Debt Collection Practices Act is designed to protect consumers regarding how debts can be collected. There are particular rules that debt collectors must follow:

• They cannot lie about the debt in any way. That includes not making false claims about where the debt came from or stating you owe more money than you do.
• They cannot pretend to be a law firm, attorney, or law enforcement agency. They cannot pressure you to pay the debt by promising to arrest you if you fail.
• Debt collectors cannot abuse or use deceptive methods to collect the debt. They cannot threaten you in any way.

In addition, debt collectors cannot contact you outside of the legal timeframe allowed under the law. This is from 8 am to 9 pm each day. They can call you numerous times during the day during that timeframe. They are also not able to tell your employer about your debt. For example, they cannot call your employer and state that they are collecting a debt. If you tell them not to contact you at work, they have to abide by this, too.

Negotiating with Collectors

Dealing with debt collectors can seem like a struggle, but knowing your rights and the process's limitations help minimize risks. Generally, there are several things that you should do when it comes to these debts.

First, Make Sure the Debt is Yours

Ask them to prove the debt is yours. That means they have to send you a debt validation letter before you have to pay anything. It should outline everything you owe, the type of debt, and where it came from. You have the right to dispute that debt within 30 days. Do that. If the debt is not verified within that time, you are not obligated to pay it.

Ask About Payment Options

Legitimate debt collection agencies recognize that you cannot make full payment immediately. They may provide you with opportunities to pay off the debt. Consider these options:

Paying off Debts in Collection

Paying off debts in collection is wise when you can do so. That may mean making payments over time until you pay the debt off. While that debt is present, it will likely be on your credit report and could hurt your long-term score. These collections can remain on your account for up to 7 years.

Bankruptcy and Debt Collections

Be realistic about your debt. If you struggle and cannot get out of debt, you may file for bankruptcy. If you do so, that immediately freezes any legal action taken against you by collectors. Once you inform them that you have an attorney or have filed bankruptcy documents, they cannot call you or try to force you to repay the debt. If the bankruptcy goes through and the debt is discharged, you do not have to repay it at any time.