Last week the website LifeHacker published a helpful article on negotiating with debt collection companies. Although I don't completely agree with everything in the article, there is some very helpful information in it as well as links to some valuable resources.
One of the main points of the article - and one that I think is absolutely correct - is that everyone should know their rights under the Fair Debt Collections Practices Act (FDCPA). If you are ever contacted by a debt collector, as a first step you should validate the debt. This means getting information on the alleged creditor, amount owed, and other facts on the account. This is very important, as it's a critical step to avoid scams, which are unfortunately incredibly prevalent in this area.
At the same time that you are validating the debt, you can also choose to formally dispute it. Doing this has a couple of advantages to it. First, it forces the debt collection company to stop contacting you for a short time, and second it requires the debt collection company to send you a written verification of the debt. If you're looking for either a break in communication from the debt collection company or you question the authenticity of the debt, this is a very good step to undertake. Another key note from the LifeHacker article that I wholeheartedly endorse; do not admit or confirm to owing any money at this stage! Simply request the additional, required information from the debt collector.
The second major piece of advice from the article includes tips on negotiating down your debt. I personally have some mixed feelings on this point. On one hand, I do agree with starting with a low amount of the alleged debt owed - LifeHacker advises 25% of the total -, because the debt collection company probably purchased the alleged debt for even less than that. In some instances, a debt collection company might buy the rights to accounts for mere pennies on the dollar, meaning it would buy a debt of $1 for just 3 cents. In those instances, even offering to pay off 25 cents to the dollar makes for a good business model for the debt collection company. This is very important to understand and consider before offering to pay off 50%, 75% or even 100% of the alleged debt. On the other hand, however, an unpaid debt is unpaid for a reason. It's important to really consider if paying off even a fraction of the debt is financially feasible in your circumstances. This is particularly true if you're considering a payment plan; will you really have stable finances to pay off the debt for months or even years? Additionally, there are sadly numerous instances in which debt collection companies prove either incapable or incompetent in servicing debt accounts. Payments get lost, charges for missed payments get added, servicing fees and miscellaneous charges can be buried in paperwork, etc., all of which can cause account balances to grow. Finally, I am reticent to endorse paying off any debt collection companies, because it can often be questionable as to whether they actually have sufficient evidence to prove ownership and authenticity of a debt in a formal legal dispute. For many debt collection companies, the business model of debt collection is predicated upon getting borrowers to voluntarily pay them back or getting default judgments from borrowers who don't respond to legal proceedings. By doing neither of those things and enlisting a lawyer in your defense, it is very possible to successfully defend against a debt collection action while saving yourself money and months of interactions with a debt collector.
A final piece of advice from the article is to get everything in writing. I completely agree with this, and it's absolutely essential. Like I mentioned above, debt collection companies are often not very good in servicing accounts and keeping accurate records. Avoid making payments that will only keep you in debt! Keep track of everything and, if you are able to pay off the debt in full or as agreed to in a modification, get it in writing!
You can read the full article from LifeHacker here. It includes useful links to articles from the Consumer Financial Protection Bureau (CFPB) and U.S. News & World Report on the same topic.
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