Editor's choice: National Debt Relief
- No cancellation fees
- Low minimum to enroll
- No upfront fees
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If you’re behind on your monthly payments for a loan, credit card or utility bill, a debt collector may get in touch with you about it. While dealing with an overdue debt can be overwhelming, it’s usually easier to manage when you understand the process.
The debt collection process varies based on your creditor, but in general, you can expect the following to happen:
If you don’t repay your debt, the collection agency might hire an attorney to sue you. You’ll receive a notice from the court system and an appearance date. If you don’t show up, you’ll lose by default and be legally responsible to pay.
When you do appear in court, both you and the collector make your case to the judge. They’ll then send out a judgment and decide if you need to pay back the debt or not. If you lose, you’ll likely be responsible for not only paying back your debt but other expenses like attorney fees, collection costs and interest. And your collector may garnish your wages or place a lien on your assets to recoup the amount your owe.
When a credit account goes to collections, your credit score will most definitely drop. How much depends on how high your credit score was in the first place. The collection account will stay on your credit report for seven years — even if you pay the collector.
However, this is changing soon with the new FICO 9 credit scoring model. With the latest update, your collection account will be deleted from your credit report once you pay it off. However, it might take some time for banks and other lenders to move to this new FICO 9 model.
Every credit provider has a different policy when it comes to overdue debts and debt collection. But generally, if you’re late with a payment, you won’t hear from a debt collector straight away. Instead, your provider may contact you by phone, email or letter reminding you of the debt and requesting payment.
If you haven’t responded to your provider or made a payment, they may then refer the account to a debt collector. This could be the case if you have a payment that’s more than 30 days overdue, but it’s more often done when your account is moved to a “charge off” status after 180 days of no payment.
Some providers and banks have their own, internal debt collection teams to help with overdue accounts. Others may pass the debts on to third-party debt collection companies (which is more common for larger debts that have been in default for several months). Whatever the case, you should be able to discuss a range of options for dealing with the debt in a way that’s manageable for you.
Before you sign up with a debt relief company
Debt relief companies typically charge a percentage of a customer’s debt or a monthly program fee for their services. And not all companies are transparent about these costs or drawbacks that can negatively affect your credit score. Depending on the company you work with, you might pay other fees for third-party settlement services or setting up new accounts, which can leave you in a worse situation than when you signed up.
Consider alternatives before signing up with a debt relief company:
Receive a notice from a debt collector and wondering if it’s a scam? A few telltale signs can let you know if the person on the other end of the phone is a reputable debt collector.
The most common way for debt collectors to contact you is via phone. However, they can also contact you by letter, in person or online through email. They can’t contact you before 8 a.m. or after 9 p.m. They’re also prohibited from repeatedly calling to annoy you, though the law doesn’t specify a number of times they’re allowed to call before it’s considered harassment.
Debt collectors are also advised to respect any reasonable requests you have for contact within specific hours and they can’t call you at work if you request or continue to call at all if you send in a letter requesting they stop. If you think a debt collector is contacting you too often, or not giving you an opportunity to respond, you can contact the company to complain or contact the Consumer Financial Protection Bureau.Back to top
As well as recommendations around how often a debt collector can contact you, there are also regulations and requirements that help protect your right to privacy. For example, a debt collector is not allowed to give anyone else details about your financial situation or to reveal that they are a debt collector unless you give them permission to do so.
This means if a debt collector contacts you at home or work and you’re not there, they can’t tell anyone else about the situation. Similarly, if they contact you online, they have to be reasonably sure that no one else will see the information.
If a debt collector contacts you, it’s ideal to respond to them as soon as possible so that you can deal with the overdue account. Depending on your circumstances, you may be able to consider some of the following options:
The Department of Justice has a list of government-approved nonprofit credit counseling agencies on its website that you can search by state. Once you’ve found one you’re interested in, check with your state’s attorney general to make sure there aren’t any complaints filed against it.
If it checks out, reach out to set up a consultation — typically these are free with legitimate agencies. Your counselor will help you come up with a plan to get on top of your finances from there.
Know you have an account in collections but not sure exactly who you owe? There are a few ways to figure out what agency your debt was sold to:
If a debt collector has contacted you about a debt that you don’t think is yours, or if the amount of debt seems wrong, send a letter to ask for validation of the debt. Check these details against your own and then contact the provider to dispute the debt.
If necessary, provide copies of any additional details, such as payments you’ve made that aren’t recorded on your account. If the situation still isn’t resolved, you can seek professional advice from a nonprofit group, hire a lawyer or file a complaint with the CFPB if you feel that the collector is harassing you.
Dealing with overdue debts can be overwhelming, but there are many ways to get back on track. Understanding how the process works and being proactive by getting in touch with any debt collectors can help you take back control of your finances. However, if your debt situation worsens to a point where you no longer think you can handle it on your own, consider using a debt relief company to help you regain control of your finances.
Pictures: ShutterstockBack to top
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