If you’ve been keeping up with our blog posts, then you know that I live a debt-free lifestyle. But, that wasn’t always the case. There was a time when I was broke, living paycheck-to-paycheck. I had a lot of debt and very little savings, and I, like many people experienced debt collection calls.
Just the word COLLECTIONS can be scary! I know it frightened me and I know it scares many of our Roots of Personal Finance members. Many questions can begin to flood your mind:
These are real questions that I have taken from my clients. Part of the reason why there's so much fear related to collection calls is due to a lack of knowledge. For many people, they might be experiencing collections for the first time, and there are many unknowns. Today, I want to share six things you should know before taking that collections call.
When I work with people who are experiencing a collections situation, it's usually because of a lack of planning. What’s that mean? That means that their debt and money is controlling them. This is never a good situation. When you take a collections call they will want money because more than likely you owe it. If you don’t have a good understanding of your expenses, it will be difficult to know what you can and can’t do. Before you take a collections call and begin working out arrangements, you need to know where you stand. The best way to do that is to create a written monthly budget that accounts for all of your expenses and income. When creating your budget, make sure you consider your necessities first! This is your rent/mortgage, utilities, groceries, gas—anything that keeps a roof over your head and food on the table and things moving day-to-day should be paid for first.
Debt collectors have rules to follow, you have rights, and you should know what they are. For instance, collectors can only call you during certain times of the day. They can’t call your employer if you tell them not to. They can’t threaten you or use abusive language. These rules are all listed in the Fair Debt Collections Practice Act. If you’re like me, you don’t like to read through legal jargon, so here is a great website that uses plain English to explain some of these rules. I highly recommend you familiarize yourself with these rules so you are confident when talking to them because you will know what they can and can’t do.
I get this question a lot. The answer is NO! You can do everything a company you hire can do to negotiate payment arrangements or debt settlements, and in many cases, I feel it's something you should do. Nobody is going to look after your financial well being better than you! As a financial coach, this is something I can help you with. So if you're looking for some guidance, we can provide you with some information to help you. An excellent resource on payment agreements, settlements, and the collections process in general, is a book titled How to Settle Your Debts by Norman Perlmutter. I highly recommend this book to anyone that is experiencing a collections situation.
Communicating with collectors is a step in the right direction. I rarely suggest that you ignore these calls. Eventually, you are going to have to deal with them. When you do begin talking to them, you may have to work out new payment arrangements or even settlements of the debts you owe. Hopefully, you’ve taken my advice on doing a budget, and with that written plan you can confidently work out payment arrangements based on what you can afford. Any agreement you make with a debt collector should be provided to you in writing. Verbal contracts are easily forgotten! Have you ever made a verbal deal with someone and they conveniently ignore it? That happens in debt collections, and you can get burned. Any agreement you make, get it in writing. Also, it isn’t a bad idea to hold on to these agreements for the rest of your life. I’ve had debt collectors call me years after a debt was settled saying I still owed the debt. But, not so fast because I had that written settlement agreement and they took a hike!
Collections aren’t the end of the world like most people think. Knowing what I know now, collections can be an excellent opportunity to take control of your finances and get rid of a lot of debt. Many people focus on the negatives, but there are plenty of opportunities to turn your situation around and put yourself in a better financial position. Sure, it will take you some time, and you may experience some bumps and bruises, but in the grand scheme of things, it could be a blessing in disguise. Before my wife and I got married, she experienced a lot of collection calls for several years. But, slowly over time she was able to work out agreements with all of them. Fast forward to today and she lives completely debt free. You would never know things were as bad as they once were. The sun does shine again!
Lastly, understand that collection calls happen to a lot of people and they can happen to anyone. I live debt-free. However, I had a collections situation pop up a few years ago for a medical bill that I refused to pay. There was a disagreement on the services that were provided, and they sent me to collections because I wouldn’t pay. Being that I understood the collections process, there was no stress, and eventually, they forgave the debt. But, this took about a year to get fixed and during that time I took numerous calls from them requesting payment of the bill. Knowledge can provide you with a lot of confidence allowing you to take control of the situation rather than it controlling you.
So if you have a bill in collections, don't panic. Arm yourself with knowledge and everything will work out.