We all wish that collections were not part of our lives. We wish we had perfect credit along with perfect teeth and a killer Instagram bod. Okay, so maybe your credit has some bumps and bruises. The good news is that with these collection agency tips, you can improve your credit and get rid of those pesky calls.
How collection agencies work
Collections are defined as past due payments on debts that have been sold from the original creditor. Past due payments are considered any late payments past 30, 60, 90, and 120 days. Collections are considered deragotory credit marks, meaning that they can drag your credit score down. Read more about how collections impact your credit score here.
Collection agencies offer creditors the chance to buy the loan or credit balance that is significantly past due on payments for pennies on the dollar. At this point the creditor has written off the balance as a loss so they are more likely to agree to selling the loan.
Essentially, the collection agency tries to obtain as much of the balance as possible thus hoping to make a profit since the agency paid for the loan or credit at a lower cost.
How collectors get paid
Collectors typically get paid by commission. Collectors will call you in order to obtain the past due balance. The more money a collector receives on a call, the more money they can take home to their families. Because of this, some collectors are less likely to agree to have you sign up for a small monthly payment in favor of larger payments. I’ll discuss more strategies to work with collectors in the next section.
How to deal with collectors
Collectors must follow a strict code of conduct. This includes limiting calls to certain periods of the day, display professionalism, and refrain from lying about true balances. You can read up about the Fair Debt Collection Practice Act and your rights here.
The truth is that there is a way to communicate to collection agencies that can minimize the frustration and resolve the issue.
Collection agents prefer to receive some money than none at all and will typically settle for less than the amount owed.
Here are a few ways to approach collection agencies.
1. Collection agencies can agree to less than the amount owed.
For example, if a collection amount owed is $1,000 and you can only afford to pay $500 ( that wouldn’t put you in a hardship) you can offer to pay that amount up front. Be careful to refrain to mention that you are settling. A settlment can be reported to a credit bureau and during tax season will cause you to owe money.
Work with agents Professionally
2. You can appeal to the agents to stop reporting the amount to the credit bureaus.
Not all agents are the same. Just like you, agents are people who are trying to make a living. I’ve had clients tell me how some agents have been very understanding and professional. If you are calm and professional, cater to the agency’s goal to save money. Once you agree to pay a lower cost up front, ask the agent to stop reporting to the credit bureau. It costs money to report the past due amount to credit bureaus. Appeal to the agencies’ desire to save money.
Remember to stay calm and explain your situation in a matter of fact tone. For example you might say something like, “I understand that my account is currently past due. This was due to the fact that I experience a financial hardship due to _______ reason. I have reviewed my budget and based off of my current basic living expenses, I can afford to pay $_____ today. I am working to regain more financial stability by obtaining a _____ (new job, additional job, funds from family, etc.”
Next, take a breath and try not to be overly upset because it will only cause the agent to be distracted from your real goal: to influence the agent to stop calling by making a payment you can afford.
3. You can request the collection agency provide you with a paid in full statement signed and dated verifying the time it is paid.
Now that we’ve explained how collections are collected and how to communicate to collectors, let’s discuss how to make things official. When asking for a paid in full statement, indicate that this is for your records. Stay organized and make sure that you file this important piece of information away as soon as you obtain it.
If the collection agency agrees to remove a collection off of your report, reports that the balance is paid in full, it can help to promote your credit score ( not necessarily by a large amount but definitely doesn’t hurt your score either).
Now what this strategy isn’t is a get out of jail free card. This is an emergency solution to an emergency situation.
Related Article: How to Calculate Your Credit and Improve Your Credit Score
Common questions about collections
Shouldn’t you just pay off the whole balance?
In a perfect world, yes you should pay off the whole balance. However, many people feel obligated to pay the full balance when they cannot afford to pay it. It is up to your personal convictions on whether or not you can afford to pay the full balance.
Finally, for most people, collections occur because of a difficult setback such as medical issues, loss of a job, or a loss of a family member that previously supported them.
At the end of the day, evaluate your personal budget, savings plan, and get back on track and the above solutions are one of many approaches to collections.
FREE DEBT COLLECTIONS TRACKER
Need some help? Download the debt collections freebie to keep you organized!
Are you ready to change your mindset?
If you are tired of trying to figure out all of your finances on your own? Sick of doing the work but not seeing any results? Talk with me and I’ll provide you with real help and a listening ear. Sign up for a free 15 minute consultation to talk more.
**Disclaimer** Her Designed Life LLC pending does not provide legal, tax, investment advisory, clinical social work, psychotherapy, or any other services that the company is not licensed to provide. If you desire to engage in these services, you are encouraged to consult with a qualified professional. No services rendered in this website by the Company shall be construed by the Client as providing services that the Company is not licensed to provide.