Have you been contacted by a collection agency because you owe a debt that you couldn't pay? Are you wondering if it's possible to negotiate with that collection agency? I'm here to tell you that it is possible.
In this post, I'm going to discuss what to do if you've had a debt sent to collections and how to work with the collection agency. Oftentimes, you can settle for pennies on the dollar, but first I'll go over what happens if you don't pay, and what you can do to reduce the amount of debt that you owe.
What is a Collection Agency?
A collection agency is a company used by lenders or creditors to recover funds that are past due, or from accounts that are in default (source: Investopedia.com) When you don't pay a loan and go into default, your lender will turn your debt over to a collection agency within three to six months.
Collection agencies can be quite intrusive into your life. They can call you every day and if you attempt to avoid them, they can contact your family members, friends, and employer, in order to locate you.
What Happens If You Don't Pay a Collection Agency?
If you don't pay off a collection agency, they can and will repeatedly contact you to collect the debt. It is often unwise to ignore their calls as this doesn't solve the problem. Your credit score suffers when you don't pay your debts and some collection terms may charge you interest and collection costs on your debt.
If you choose to ignore collection agencies, they can reach out to your friends, family, and employer to find you. They cannot reveal that you have a debt in collection but it can tough to explain to friends, family, and your employer, why someone is asking questions about finding you.
There's also the stress of your phone ringing every day. Debt collectors can call you between 8 AM and 9 PM daily. Eventually, the constant phone calls can wear you down and you may consider it time to settle with them.
Lastly, a debt collection agency can sue you. Below are more details.
Can a Collection Agency Sue You?
Some people feel that they should only deal with their original creditor and not with the collection agency itself. But, once a debt is sold off, the full amount becomes due to the collection agency. If you don't pay them, they may sue you to recover the money owed.
In a debt collection lawsuit, it's best to talk to an attorney. If you are sued and the debt collectors win, you could have your wages garnished. However, if the debt is outside the statute of limitations, generally 10 to 15 years, you may be able to avoid the lawsuit.
Can a Collection Agency Garnish Your Wages?
If it's legal in your state, a debt collector can file a lawsuit against you and a possible outcome is that your wages are garnished to the collection agency. When your wages are garnished, money is deducted directly from each of your paychecks until your debt settlement amount for your collection account is paid off.
How To Negotiate with a Collection Agency?
You can often negotiate with a collection agency that's attempting to recover debt. If you offer a lump sum, you may be able to pay as little as 50% or less of the total debt and the debt will be cleared. Whatever you negotiate with the debt collector, get it in writing before you pay anything.
Consider mentioning that you're considering bankruptcy if your debt is an unsecured debt such as a medical bill or a credit card debt. If you file for bankruptcy, your debt will be cleared completely, which means the collection agency gets nothing. This will make them more likely to negotiate with you for some amount of money.
Will Collection Agencies Settle for Less?
Yes, oftentimes, debt collectors will settle for less. There are several ways to get a collection agency to settle with you.
- Keep your story straight: Always use the same story. Were you ill? Did you lose your job? Remain polite and keep your story straight.
- Stay calm: Debt collectors can try to catch you off guard or be rude in general. Don't lose your cool. If the collector is causing you to anger, tell them you can't talk right now and hang up. You can also tell them that you are recording the conversation, which often causes collectors to behave better.
- Only agree to what you can afford: A lump sum will often get you the best deal on a collection. Go through your finances and figure out how much you can pay and try to resolve the debt.
- Deal with creditors before it goes to collections: It's best to work with the creditors of your original debt before a debt buyer gets to it. When you discuss terms with the company you owe the debt to, you can sometimes get a better deal and mitigate how much damage your credit score takes.
Wrapping It Up
When in doubt, always attempt to work with your creditors before a debt gets sent to collections. If you do get sent to collections, work with the collection agency. Ignoring calls generally makes the situation worse. Take a deep breath and negotiate with the debt collector. If things become difficult to handle, consider a credit counselor.
Until next time!