Everything You Need To Know About Collections —- The 2023 Guide On Collections
Life happens and sometimes things are out of your control. It can affect you in so many ways, especially in a direct personal way. Bills can pile up and the next thing you know your credit score can start taking major hits. If you don’t pay your loans, credit cards, or other debts on time, your unpaid balance could be sent to a debt collection service; if not directly reported by the original creditor. Receiving phone calls and letters from an agency trying to collect money can be stressful and although sometimes out of your control; we would like to help you understand what to expect and how to help prevent situations like this in the future.
If this happens to you, it’s important to know how debt collection companies work and what protections you might have.
What is debt collection?
When a collection agency is hired by an original creditor; they try to get people to pay back debts they owe.This is called debt collection. A debt collector might get in touch with you if you haven’t paid your loan or credit card bills in a long time and they are very late. In many cases you will be given a 90-180 period before it’s actually reported to the bureaus but that’s at the discretion of the company and the details of your initial agreement.
A debt collection agency might also contact you if you cosigned a loan or are an approved user on someone else’s credit card, vehicle etc.. They want to get the money they are owed. These unpaid bills can be anything, like:
- Medical debt
- Car/auto loan debt
- Personal loan debt
- Credit card debt
- Student loan debt
- Utility and phone bills that aren’t paid
Debt collectors are third-party companies that gather debts for another company. If a company works for the original creditor, the original creditor pays the debt collection a portion of the debt it collects. Sometimes, if you don’t pay back your debt to the original creditor, a debt collection agency will buy it for pennies on the dollar and then go after you.
How do Companies get their money back?
The way a company collects a debt could be different from one company to the next. Some agencies only help with one type of debt, like medical debt or school loan debt. Some people may have debts that are a few years old. Some people might not deal with debt after the statute of limitations has passed, which varies based on where you live.
Once a bill is a couple of months late, a collection agency can go after it for as long as it takes. It depends on how much you owe, who is collecting the bill, and what kind of debt you have.
If you have past-due debt that you haven’t paid, your original creditor will usually let you know through written letters and phone calls. For example, if you stopped paying on an old student loan, your backer will try to get in touch with you to bring the account up to date. If it doesn’t work to get you to pay back what you owe, it will stop. At that point, the original creditor generally changes into a debt collector.
How do debt collectors work?
There are plenty of debt collection companies that do bad things to get money from people who owe money, but most follow the rules and act in a professional way.
Reliable debt collection companies will send letters to the address you gave your creditor. Agencies can try to collect a debt from you at your new home if they can find out that you’ve moved. Whether they call you or send you a letter, organizations have to tell you specifics about your debt, such as:
- The name of the first person who owed money.
- The total amount you owe, including fees for being late and other costs.
- You can challenge the debt in question, but there are some rules.
The debt collector must tell you that you have 30 days to write in and dispute the bill. If you ask for the original creditor’s name and address, they have to give it to you. If you don’t contest the debt within 30 days, the agency will think that you owe the money and will keep trying to get it from you.
Companies that follow the rules will work within the statute of limitations, which depends on the type of debt you owe and where you live. They will only call you between 8 a.m. and 9 p.m., but you may get several calls in one day.
When collection companies do their jobs right, you shouldn’t have to worry about being harassed or threatened. If a company tells you that you will be arrested, that the police are coming, or that someone is coming after you, they are not behaving legally.
Why it’s important to follow the Fair Debt Collection Practices Act
Consumers don’t have to put up with abuse and threats from debt collectors because of the Fair Debt Collection Practices Act, or FDCPA. Some of the following are not allowed:
- Pretending to be a lawyer, police officer, or anyone else besides a bill collector in order to get you to pay.
- Telling lies about the debt, like saying it came from someone else or that you owe more than you do.
- Other tricks or bad behavior, like saying they will have you arrested.
If a debt collector or someone pretending to be a debt collector hurts you in any way, you can report them to the government. This is how:
- Go to the Consumer Financial Protection Bureau and file a report.
- Tell the Federal Trade Commission about your problem.
- You should file a report with the attorney general of your state.
Under the FDCPA, you can also sue a bill collector for lying to you. If you win in federal court, the bill collector will have to pay for your lawyer’s fees and maybe even pay you damages.
How to handle a bill that is being collected
This step-by-step guide can help you figure out what to do if your bill goes to collections.
- Make sure that you owe the money. The FDCPA says that debt collectors have to send you a “debt validation letter” before you pay anything. This is a very important step because it makes sure that the loan is really yours. A debt validation letter will also say how much money is due, what kind of debt it is, who the creditor is, and other important details. You have 30 days to question the bill if there are mistakes.
- Explore your payment choices. When it’s time to pay off your debt, you usually have two choices. You can either pay off your balance all at once or set up a plan to pay it off over time. The best choice for you will depend on how much money you have and how much debt you have. Before you choose a plan, figure out how much you can afford to put down. You might be able to work out a plan to pay back less than what you owe, or you might choose to work with a credit counselor or join a plan to handle your debt.
- Begin making payments. Contact your debt collector and ask for a written deal before you start making payments. After you get the agreement and carefully check the details to make sure they are correct, you can start making payments. After you make your first payment, check with the collector to make sure it was received, and keep a record of every payment you make for the future.
What happens to your credit when a debt is sent to collections?
A big part of your credit score can be affected by a bill you haven’t paid. If you don’t pay a bill on time, your creditor can tell the credit companies. This will cause your credit score to go down.
Collections can stay on your credit report for up to seven years after the first due date. This story should become less important over time. The account should fall off of your credit report after seven years. If it doesn’t, you can dispute it with the credit bureau and have it taken off your record.
Still, there are times when bill collectors won’t hurt your credit score. The country’s three credit bureaus said earlier this year that they would change how they report hospital debt.
After July 1, paid medical collection debt will no longer show up on your credit record. That means that a medical bill that was sent to a collecting agency and showed up on your credit report will be taken off.
Also, you now have more time before unpaid medical collection debt shows up on your credit record. The time frame has grown from six months to a year. The credit bureaus also said that hospital collection debts of $500 or less will no longer show up on credit reports.
Creditors and debt collection companies can use the law to get money that is owed to them by collecting on debts that are past due. If you’ve been late on payments or haven’t made them at all, you owe money to companies. If you don’t, you might get a lot of calls and letters from people trying to get their money back. Visit Freedomcreditbooster.com and book a consultation to get the play book on how to avoid debt collections.