2. “Credit Building 101: Strategies for Establishing and Improving Your Credit”

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What to Do When a Debt Collector Contacts You

1. Verify the Debt

When a debt collector contacts you, the first step is to confirm the debt’s validity. Under the Fair Debt Collection Practices Act (FDCPA), you should receive a debt validation letter within five days of initial contact. This letter will detail the specifics of the debt. If you haven’t received this letter, request one in writing before discussing any details or making payments. Once you receive it, you have 30 days to challenge any inaccuracies by sending a debt verification notice. During this period, the collector must pause collection activities and cannot report the account to credit bureaus until they provide written verification of the debt.

2. Verify the Debt Collection Company

It’s also crucial to confirm the legitimacy of the debt collection company. Ask the collector for the company’s name, contact information, and professional license number if required by your state. Contact your original creditor to confirm your account fell into collections and get the name of the debt collection agency. You can also search the National Multistate Licensing System (NMLS) Consumer Access using the collector’s name and license number to verify the company’s legitimacy. If you suspect a scam, consult a consumer protection attorney.

3. Assess Your Finances to Identify Your Best Payment Option

After verifying the debt, review your finances to determine the best way to satisfy the debt. The simplest option is to pay the amount in full. If that’s not feasible, review your income and expenses to see how much you can comfortably pay. Agreeing to payment terms beyond your financial ability could cause more financial hardship. Determine the maximum amount you’re willing to pay and decide on the best payment option for your situation.

Reduced Lump-Sum Payment

If paying the full amount isn’t possible, explain your financial situation to the debt collector. They may be open to negotiating a lower repayment, especially if you can pay it upfront. Start with a low offer, such as 25% of the debt you owe, and work toward a middle ground. Your debt collector may accept a lump-sum repayment amount between 25% and 50% of the full debt, but this is not guaranteed.

Repayment Plan

If a reduced lump-sum payment isn’t an option, you might negotiate a repayment plan that fits your budget. Before discussing a monthly payment plan, agree on the total debt amount. Ensure any payment amount you agree to doesn’t compromise your ability to pay essential expenses like rent or mortgage, utilities, gas, and food. If you can’t reach an agreement that fits your budget, end the call and try contacting the debt collection company again in a few days.

4. Get It in Writing

As you negotiate, take extensive notes and save all communications. When you agree to a partial repayment or payment plan, ensure the agreement is confirmed in writing on company letterhead. Insist that the written agreement includes a clause stating the debt collection company will remove any negative reporting they’ve added to your credit report. Having documentation and written agreements can help reduce potential misunderstandings later on.

How Much Will a Debt Collector Settle For?

The amount a debt collector may settle for varies. It could depend on your financial situation and the age of the debt. Policies vary among debt collection agencies. While one agency may accept 20% of the original amount owed, another may insist you pay at least 80%. The terms of any agreement will depend on your negotiation skills and the collector’s willingness to negotiate.

Will Settling My Past-Due Debt Help My Credit?

Settling your past-due debt may help your credit, especially if your creditor still holds the account. Contact your creditor immediately to make payment arrangements and avoid further collection efforts. If the debt is already in collections, it’s still worthwhile to repay it in full or settle it for less. Settling your account is generally viewed more positively than not paying the debt at all, but not as positively as repaying it in full.

Take Steps to Build Your Credit

If a debt collection company is contacting you, it’s imperative to deal with the issue promptly. Verify the debt collector and the debt’s legitimacy, and dispute the collection if it isn’t. If you do owe the debt, it’s best to pay it off in full instead of negotiating a settlement. Late payments and collection accounts can harm your credit for up to seven years, though their impact may lessen over time. In the meantime, take steps to rebuild your credit by checking your credit report and score.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial journey with confidence.

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