For a lot of Americans, debt collection is a world that they’ll either never understand, or avoid altogether. So what are collections? And what are charge-offs? What are the differences in this financial jungle?
The first thing to note is that debt is different from a collection, just as a collection is different from a charge-off. Once you go past 60 days without making a payment, your interest rate will rise. However, lenders have to go through their own process to verify everything. Once they do – which takes six months – your lenders writes your charge as a debt (or charge-off), which you receive, and it stays there for seven years.
The (Brutal) Skinny
In the meantime, collection agencies will buy debts from people like you and stick all the info on a big spreadsheet. This process is never fun. Debt collectors work like everyone else. But it’s still sad to know that some debt collectors are recorded as threatening to call bosses at home, or shoot a dog (!).
However, keep in mind that there is a statute of limitations for your debt, and how debt collectors respond, which is typically three years.
Unfortunately, the debt problem goes deep. The National Consumer Law Center found in their report to the Federal Reserve Board that debt collection abuses range from harassment to just plain deception. Credit card issuers are unable to even source their claims in some cases.
The affect of these collections can result in wage garnishment, where money is deducted from an employee through a court order. The resulting pay seizures used to be specific to child support, but today, that is no longer the case as the balance has shifted towards creditors. Especially in Missouri, where there is more than one lawsuit for every four residents of the city of Jennings – a problem so bad the city paid over $4 million back to its residents for this dramatic increase in collection.
The conditions of debt collection are strict, but the court system under which debt collection operates is anything but. Only seven percent of all defendants in collection cases have attorneys. The debtors, meanwhile, rarely even attend (often unaware why they’ve been summoned to begin with), which leaves the facts of each case in dispute.
What You Can Do
You’ve probably seen enough movies to know what the smart crook does when a cop sweats him or her down at the police station, but hasn’t immediately arrested them for anything – ask for your lawyer.
Granted, you don’t have these options when debt collectors start calling, but there’s a similar principle at work – know the rules of the game!
For one, debt collectors have a legal obligation to give you essential information. As they do, always ask questions, especially questions about the date of the late payment. Remember that debts are often sold by the the original collector to a third party. This means (as seen in the pic above) that original info may be hard to come by. If they don’t have it or can’t replicate it then perhaps it’s them that needs to be put on the spot.
Debt collectors know you don’t want to pay, so don’t do them favors by asking the amount, and doing whatever they tell you. Don’t even promise to pay. Simply gather information. Even if everything is on the level, and you know you were late, establish terms. If the debt collector is who they say they are, request a debt validation letter. If they say no, then explain to them that they’re violating Federal Law.
Essentially, this is your time to dispute this debt if you suspect this is not yours, or find out more about what’s hurting your credit if it is.
Also: be careful about paying off your debt!
Keep in mind that paying off a debt goes onto your credit report. Lenders will see this as a sign of instability, regardless of whether or not you’re simply doing right by the debts you have. It’s not that you shouldn’t pay off your debts. Rather, be aware of what happens when you do – if you’re not involved in buying a house or a car anytime soon, maybe you should pay off the debt to increase it long term. Otherwise, paying off a collection will hurt your credit short term.
For a free credit evaluation to give you all the education you need to know about debt collectors, and how to keep them from making you go John Wick on them for threatening your dog, call us at 210-520-0444 or visit us at 6989 Alamo Downs Pkwy, San Antonio, TX 78238.