Apr
24
Working With a Collection Agency
April 24, 2007 | 3 Comments
You’ve just opened an official looking envelope and learned that a creditor is sending you a collection notice — what do you do?
First, if the collection is small, consider paying it (even if you don’t owe the money). Sometimes it’s easier and smarter in the long run to pay a collection and move on. While you can dispute collections, it’s a time consuming process and it doesn’t always work.
However, if you want to dispute the collection, here’s a step by step guide:
1. Put a date on every piece of correspondence and make a copy of everything. You’ll need copious records if you’re going to win.
2. Within 10 business days of receiving the notice, you need to send a letter indicating you wish to dispute. If you don’t get this letter out in time you’re not going to be able to dispute the collection and you’re admitting you owe the debt.
3. Upon disputing the collection, the creditor is required to provide proof of the money owed. Believe it or not, a few collection agencies will drop the matter right here. For a lot of creditors, it’s too hard to provide proof (this is especially true of medical collections).
4. If the creditor DOES provide proof that you do owe them money, make sure you haven’t already paid. Sometimes collections are pursued in error. Again, with medical collections, your insurance company can often provide you with proof that they paid the bill.
5. If you can’t provide proof of payment then it’s time to negotiate the amount of the collection. Call and speak to the collection agency and explain to them that you believe you’ve already paid this bill. However, since you have no proof, you’re willing to pay a portion of the bill to settle the dispute. Typically, you can settle a collection for half of the amount owed. If the collection is large (in excess of $1,000) you may be able to settle for less than half. Start by asking them what they can do to reduce the amount owed. This negotiation can take time and a few phone calls, but it’s worth it. Speak to the manager if you don’t like the answers you’re getting. At the end of each conversation make sure you record the day and time as well as the name of the person you spoke to and their direct number.
6. When you do reach a negotiated settlement, send a letter summarizing your negotiation to the collection agency and ask them to re-bill you for the negotiated amount. Don’t pay them until they’ve sent you a new bill for a lower amount (otherwise, they’ll apply the lesser amount to the full balance and bill you for the remainder). Also, make sure the bill shows that the lower amount, when paid, will satisfy the debt. Finally, make sure you keep every record so that if they come back asking for more money later you have proof they were paid.
Follow these steps and your credit report will stay collection-free and your good credit score will be preserved.
What if you have collections that were already filed and now show up on your credit report?
If you have any collections that are showing on your credit report, your first step is to dispute them with the credit bureau. Go to each credit bureau’s website (links below) and dispute every collection. Remember, when you dispute a collection the creditor is required to provide proof of the debt. Depending on the age of the collection, the creditor may not be able to provide proof and the collection will be dropped. If the creditor does provide proof they will also provide contact information to help settle the debt. You can then follow the steps above.
BTW – disputing collections online is the easiest method and recommended by all three credit bureaus. While you can dispute via phone or mail, these methods are more difficult and usually less successful.
Some people reading this may be tempted to dispute every debt — after all, if creditors typically settle for less than full balance (assuming they can provide proof) why would anyone pay their creditors in full? Remember that even if the collection is settled and your credit bureau is never affected the creditor will not extend you credit again. Don’t dispute a debt from a creditor you want to have a relationship with in the future (like your personal bank, for instance).
The Bottomline: Don’t pay any collection without disputing it first. If you dispute a collection and proof is provided, make sure to negotiate the amount owed. While time consuming, it can save you a lot of money to follow these steps when working with a collection agency.
Credit Bureau Collection Dispute Links:
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3 Comments so far
[...] Working With a Collection Agency [...]
[...] reading this than it’s probably too late for that. If you haven’t read my tips for working with a collection agency, make sure you do so now. In addition to those tips, it’s not too late to get your insurance [...]
I have a question. I am in collections from a banking institution (poor bookkeeping on my part) and I haven’t heard from them in over a year. How can I contact them to discuss settling this debt ($1000) or should I leave it be since they haven’t pursued me? I want to try and work out a pymt plan and when they did try to call me a few times last year, I wasn’t in a position to satisfy this debt. I am recently married and my husband and I are seeking an attorney to file chapter 7 bankruptcy. Is this something I can claim? Or again, should I just leave it alone because they no longer contact me? PLEASE email me back with advice of your personal opinion. Thank you kindly! -Angela