How To Deal With Debt Collection Letters
If you simply ignore the fact that your credit card payments are overdue for long enough the credit card company will eventually stop bothering you and you will begin receiving letters from a debt collector instead which, in some cases, can be quite frightening.
For example, it is not uncommon nowadays for law firms to be engaged to collect debt and receiving a letter from a lawyer threatening you with court action if you do not settle promptly can be quite upsetting to many people.
The fact of the matter is that creditors can take you to court to recover their money if they wish to do so but in reality this very rarely happens because it is a time consuming and costly business for the creditor and there is no guarantee that he will meet with success. This said, creditors do indeed sometimes choose to follow this route and you certainly need to be aware of the possibility of being taken to court. However, you also need to be aware that many creditors will also use the threat of court action to put pressure on you but have no intention of carrying out that threat.
For many people, by the time they start receiving letters from the debt collectors they are already feeling that they are so deeply in debt that the only solution to the problem is to declare themselves bankrupt and thereby get all of their creditors off their back. Bankruptcy is certainly an option, but there are considerable drawbacks to declaring yourself bankrupt and it should be very much a last resort to be contemplated only after you have explored and exhausted all other avenues.
The answer here is simply to talk to the debt collector and to see if you can negotiate a suitable settlement. However before you do so you must first establish that the debt collector has a reasonable claim and then understand just how he operates so that you can put a satisfactory offer to him.
Although many people are not aware of it, credit card debt is governed by the provisions of a state's Statute of Limitations and that creditors are given a fixed period of time in which to recover credit card debts. Thereafter they have no legal right to request repayment of the debt. Your first step therefore must be to satisfy yourself that your debt has not expired, or that it is not about to expire, in which case your best course of action might simply be to delay matters until it does expire. More details of this can be found in our article "The Statute Of Limitations On Credit Card Debt".
Most debt collection agencies will either have paid only pennies on the dollar to buy your debt from the original creditor (your credit card company) or will be paid only pennies on the dollar for collecting your debt. For example, if you owe $2,000 then the debt collection agency may have paid only $140 to buy your debt or will receive only about $140 for collecting it. The agency also knows however that a very high proportion of the debts it tries to recover will not be recovered in full and that as long as they can bring in more than their costs they are making a profit. For this reason you should always start by making a very low offer (less than 25%) for settlement.
Remember that you are in a very strong position when it comes to negotiating with a debt collector because you have something he wants and so you can remain calm and take your time until you reach a settlement which you are happy with.
Here are a few basic principles when it comes to negotiating a settlement with a debt collection agency:
- Never talk to the agency by telephone and insist that all of the negotiations are conducted in writing.
- Keep copies of every piece of correspondence you send and receive.
- Send all correspondence by registered mail for which a receipt is requested.
- Be wary of any additional sums added to the debt by way of such things as penalties or interest which are often added arbitrarily to simply increase the debt collector's profit. Although interest may be added in certain circumstances the amount which may be added is laid down by law and, since the debt collector has paid only pennies on the dollar for your debt, such amounts should normally be very small.
- Do not be rushed into settling. Remember that time is on your side because of the Statute of Limitations on credit card debt and that, as time moves on, the debt collector is likely to be more inclined to accept your settlement offer.
- If you receive an offer for settlement from the debt collector never accept it. This is merely his first attempt to get you to pay and if you reject it then it will always be followed by another, if not several, lower offers.
- Remember that just as the debt collector can use the threat of legal action to intimidate you, so you too can use the threat of bankruptcy. Keep this weapon in reserve for use towards the end of your negotiation when you can often bring it out to good effect to get a final agreement.
Do not forget that settling your debt is not quite the end of the story because you will still need to ensure that your future credit standing is also protected as far as is possible. Once you are at the point at which agreement can be reached you should therefore also take the opportunity to negotiate your credit rating with the debt collector. For more information on just how to go about this see our article entitled "How Do I Repair My Credit Rating?"
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