Contacting Creditors and Collection Agencies

When you're in debt and cannot afford the payment, don't wait for the creditor or collection agency (CA) to contact you. Instead, you should contact them and ask for a new repayment plan. This article gives you an idea of how to contact creditors/ CAs to negotiate for the repayment plan.
How to contact creditors
Here are the do's and don'ts of contacting creditors.

Do's:

1. Whom to contact first: Make a list of your creditors, account numbers and balances, payment due dates and monthly payments. Find out from the list which creditor owes more and contact him first.

2. Contact by letter or Phone: Contact the creditor either by phone or by letter. If the phone number is missing, you can check from our Creditors Address Book. Or else, call at the toll free number - 1 800 555 1212 (Information directory). However, it's better to write a letter (certified mail) as you can attach relevant documents (for eg: the budget you've planned) along with it.

3. How to speak on phone: Be polite while you explain your situation even though the creditor may be rude and offensive. Creditors will not be willing to help you if you're aggressive as because they are not obligated to offer you a special payment plan.

4. What to inform creditors: Explain your financial situation clearly and inform the creditor about the following:
o Why you're behind on payment
o Your current income & obligations
o Your plans to get current on your debts
o The exact amount you can pay monthly
Apart from the above details, tell your creditor about what other debts you have. If others have accepted your offer, he may as well accept the offer.
5. Account status: Ask the creditor (or his representative) about the status of your debt account.

6. Contact details: Ask for the mailing address, fax number of your creditor along with the first and last name of the representative and his direct telephone number. You'll need these details if you'll have to contact him again.

7. Purpose of contact: Negotiate with your creditor for a debt consolidation or debt settlement, or else request him to extend the time period of repayment.

8. Show your budget: Prepare a monthly budget so as to inform the creditor exactly how much you can pay till your financial situation improves. A well-planned budget reflects your commitment to repaying debts and helps you reach an agreement with the creditor.

9. Offer to creditor: If the creditor is interested in the amount you offer, then make sure you obtain a written agreement including the terms and conditions for payment.

You can prepare a summary of your conversation with the creditor and mail or fax it to his representative. If in case the creditor does not honor the agreement, contact the representative by mail and find out the reason and how you can rectify the situation. A copy of the agreement will help ease the discussion.

10. Not able to honor commitment: If in case you are not able to honor the agreement, then you should call the creditor asap and explain your new situation. What's important is to maintain a good relation with the creditor.

11. Court Action: If your priority creditors threaten to sue you for non-payment of debt, explain your problems and request them to hold off the action, so that you can decide upon your plan of action. Once you speak to your priority creditors, calculate your disposable income (gross income - priority debts) to find out how much is left to pay off other debts.

Don'ts

1. Which creditor to pay first: Do not end up paying more to creditors who are more aggressive. Prioritize your debts and pay accordingly.

2. Affordability: Don't offer an amount which you cannot afford.

3. No commitment: Don't tell your creditors that you'll pay simply what you can. Creditors won't consider it as a commitment. They'll be happy if you guarantee the payment of a smaller sum rather than a larger amount, which you may not be able to pay actually.

4. No agreement: Don't pay your creditors till you receive a written agreement.

5. New credit: Don't apply for new credit/loans without your creditor's approval.
How to contact collection agencies
Given below are the do's and don'ts of contacting collection agencies.
Do's:
1. Contact through letter/mail: Make sure that you never contact a collection agency by phone. In most cases, collection agents want to collect money and have no interest to settle your debts over the phone. They often get involved in illegal practices and violate the FDCPA.

When you contact the collection agency in writing, make sure that you refer to the debt by listing the account number and not as "my debt".

2. Ask for contact details: As per the laws, debt collectors must inform you about their real names and the name of the agency they're associated with. Also, request the collector to provide you with a written follow-up including their claims, name of the original creditor and what steps to take if you think you don't owe the money. Make sure you keep all documents sent to the CA or received from them.

3. How to stop collection calls: If the collection agencies are making harassing calls, send them a Cease and desist letter by certified mail (with request for return receipt) asking them not to contact you. Once they receive your letter, they can call you only to inform what legal action they'll take. In case the CAs contact you more than once, you can have the right to sue them.
Don'ts:
1. Negotiation by phone: Do not make any payment arrangement or negotiation over phone. All negotiations should be made in writing.

2. Loss of temper: Do not lose your temper when you deal with a collection agency even though the latter may sound rude. This is because it may put a set back to your chances of negotiation with the CAs.

3. Late response: Don't ignore the calls from your collection agency even if the debt isn't yours. This is because the collection agency may get a court judgment against you. So, be quick and send a debt validation letter to the collector thereby asking him to validate the debt.

Finally, do not admit the debt if you don't owe it.
What if a creditor/CA contacts you?
At times a creditor or collection agency may contact you first via phone or letter. Most creditors/CAs do not accept an amount lower than 30%-50% of the original balance. So if you get such an offer, it's better to accept it. Once you accept the offer, you'll need to use letters such as "Acceptance of Written Offer" and "Agreement to Settle a Debt".

Whether you contact the creditor/CA or vice versa, make sure you know your rights under the FDCPA. Also, check out the mailing guidelines to understand how best you can communicate with creditors or collection agencies

Daron Vchulek
Friday January 7, 2010