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How to Handle Debt Collection

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How to Handle Debt Collection

Collections from debt could be severe. This is why they happen and how it can affect your credit, and the best way to manage it.

Written by Sean Pyles Senior Writer | Personal finance credit, and personal finance Sean Pyles leads podcasting at NerdWallet as the host and producer of the NerdWallet’s «Smart Money» podcast. The show «Smart Money» Sean talks with Nerds from NerdWallet’s NerdWallet Content team to answer listeners’ personal finance questions. With a particular focus on sensible and practical money tips, Sean provides real-world guidance that will help consumers improve the financial situation of their lives. In addition to answering listeners’ financial concerns on «Smart Money» Sean also interviews guests who are not part of NerdWallet and also creates special segments that explore subjects such as the racial gap in wealth, how to start investing and the background for student loans.

Before Sean was the host of podcasting at NerdWallet the company, he also wrote about topics that dealt with consumer debt. His work has appeared throughout the media including USA Today, The New York Times and other publications. When he’s not writing about personal finances, Sean can be found digging around his garden, going for runs , and taking his dog for long walks. Sean is located in Ocean Shores, Washington.

as well as Tiffany Curtis Lead Writer | Health and Wellness Tiffany Lashai Curtis is a chief writer for the personal finance team at NerdWallet. She was previously the health writer for Livestrong.com and freelance journalist for magazines such as Refinery29, Business Insider and MTV News, where she was a specialist in the issues that affect communities with marginalized populations. As a wellness facilitator she’s led health-related discussions with organizations such as Planned Parenthood and Harvard University. She is located in Philadelphia.

Nov 22, 2022

Editor: Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, debt and money management Kathy Hinson leads the core personal finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years at The Oregonian in Portland in roles including copy desk chief and team editor and designer. Prior experience includes copy editing and news for a variety of Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor’s in journalism and mass communications at the University of Iowa.

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Nerdy takeaways

Debt collectors can contact you by telephone, mail, or via text. You have the right to ask for debt verification and confirmation letters. It is the Fair Debt Collection Practices Act defines what debt collectors are allowed to do and cannot do. You may set up an installment plan, pay your debt, or pay off in full. Legal aid at no cost or for free could be able to assist you if you receive a court summons.

If you’re receiving calls from them, ensure you understand the process of debt collection and the best method to deal with your account, and the implications for your credit — before you pay anything.

It’s crucial to handle the collection of debt. If you don’t, you could end being in the court.

If you’re battling the IRS regarding a, you must be sure to take the necessary steps to not let it turn into a .

What is debt collection?

The process of debt collection occurs when a goes unpaid for a period of time. The late payment could begin 30 days after the date of due. You’ll receive notices and perhaps calls from the creditor requesting payment.

At some point, typically after 120 to 180 days of nonpayment the creditor for example, a bank, credit card company or medical service provider ceases to collect. The original creditor may then sell your debt to a collection agency in order to recover losses.

After that, you’ll begin receiving debt collection notices from a different business. Collection agents may call to send notices via mail and emails, or send text messages. The same debt is still owed, and you still owe payment but a third party has bought the right to collect.

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How do you deal with the collection of debt

Don’t make any rash choices when you are dealing with a problem; you could make your situation even worse. Follow these guidelines:

Get the facts

You are entitled to receive ; you can use it. You’ll receive a confirmation letter from the debt collector within five days of the first contact. Examine it for specifics about the age, amount and the history of the debt, and information on who’s trying to collect the debt. Check your own recordsincluding yours — to confirm the information about the accounts. If you require additional information, request a debt verification letter.

Know your rights

Learn about your rights as a consumer in order to know what collection agencies aren’t allowed do, such as calling you at unreasonable times and threating you with arrest, or using obscenities. Some states have even more protections for consumers. Find your state’s laws online , or visit the office of your attorney general to find out more.

Be aware of your choices

The two most commonly used methods to deal with a debt in collections are choosing a payoff method and arguing the debt for having been erroneously assessed:

There are several options for a collections account. No matter which you select, don’t grant the collector access to your bank account by providing your debit card number or by setting up automated debits. If you agree for a payment plan , or to settle the debt for less than what is owed, you must get the agreement in writing so that you can make the collector accountable.

It is possible to do this if the property isn’t yours or if you already paid it off. The company must cease collection efforts and look into the matter. At this point, it can’t report the matter on your credit report. If it determines that the debt is legitimate, the debt collector will mail you documents verifying the amount. If it does not, it will cease to attempt to pay the debt.

The impact of debt collection on your credit

In general, debt collection will be on your credit reports from the point the account originally became delinquent. However, there are exceptions for medical bills that go into collections but are later paid by insurance companies; those drop off your credit report once paid.

Some of the latest scoring models, like VantageScore 3.0 and — ignore collections that have been paid. But FICO eight credit scores which are which are the ones most frequently utilized in lending decisions will consider even if the original debt was over $100.

As with other marks that are negative such as collections appearing on your credit reports will hurt your credit, but the effects will decrease as time passes. There are many methods to attempt to get the debt removed from your credit report, including:

Disputing the account if an error has been made.

You’re asking for a loan if you’ve already paid the credit.

How to deal with the court summons to deal with debt collection

are a common and efficient method used by agencies for collection to collect. Here’s how to handle the court summons to pursue debt collection:

Never ignore a court summons concerning outstanding debt

These lawsuits can lead to the bank levy, the issuance of a lien against your property.

Look for errors

Make sure that the debt collector can prove that the debt actually belongs to you and that the debt amount is true and the debt isn’t due to expire. Every state has a deadline period after which you may no longer be legally sued for the payment of your debt, however you can still be contactable.

Get legal help

Employ an attorney who is specialized in defense of debt collection. If you’re unable to pay court fees, you can search for low-cost or free legal aid programs in your area through the internet or .

About the authors: Sean Pyles is the executive producer and host of NerdWallet’s Smart Money podcast. His writing has been featured throughout the pages of The New York Times, USA Today and elsewhere.

Tiffany Lashai Curtis is a lead writer on the team for personal finance. She has more than 5 years of experience in reporting on issues that affect marginalized communities.

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