Six ways to deal with collection agents

No one likes to get a menacing call from collections. Here’s what to do if someone’s demanding payment.

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From the May 2010 issue of the magazine.

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When jobs are lost or emergencies strike, even diligent bill-payers can find themselves dealing with collection agents. If it happens to you, don’t panic. Simply follow these steps, and you may be able to negotiate your way to big savings while avoiding an unpleasant bankruptcy.

Prioritize your  debt
“Not all debt is created equal,” says Mark Silverthorn, a lawyer and author of The Wolf at the Door: What to do When Collection Agencies Come Calling. For taxes or Canada student loans, the government doesn’t cut deals and rarely gives up. Secured debt, such as mortgages or home equity lines of credit, is tough to get out of too, but credit card and other unsecured debt is open to negotiation.

Find out who’s calling
Most creditors try to collect their debts in-house for the first six months or so. After that, they generally farm the work out to collection agencies. After a year or two the creditor may sell the debt to a debt repurchaser for as little as half a cent on the dollar. Keep in mind who you’re dealing with: creditors want full repayment, but collection agencies receive a commission and want the most they can get as quickly as possible. Debt repurchasers are often content with smaller payments.

Could you get sued?
Collection agencies routinely threaten to sue, but this is often a bluff. Only the original creditor is likely to go to the effort. Silverthorn says the slim commissions earned by collection agencies mean fewer than one in 10,000 consumer accounts end up in court. If you haven’t been served papers within six months of missing a payment, odds are you never will be.

Handle the calls
Creditors have the right to remind you that you owe them money. But only to a point. In B.C., Alberta, Ontario, Quebec and Nova Scotia, you can legally request that collection agencies stop calling you at home. Some provinces also have rules on calls to your workplace. Plus, you can screen your calls, hang up or get an unlisted number.  “You should speak to collection agencies when it suits your schedule,” says Silverthorn.

Cut a deal
If your debt is more than a year old and you’ve avoided a lawsuit, it’s time to bargain. Silverthorn cautions against making token “good faith” payments on bills, as this restarts the debt clock. And credit counseling usually requires that you eventually repay all your debts in full. Instead, try to get your creditors to accept 30¢ to 65¢ on the dollar, less if its been more than two years. But first get it in writing.

Repair your credit rating
Unpaid debts show up as R9 on your credit report: the worst possible rating. This will stay for six or seven years, depending on your province, and have a significant impact on your ability to borrow in the future. But any debt settlement—even for pennies on the dollar—will eliminate that debt and instantly boost your credit score. That’s why negotiating a settlement is generally a better option than declaring bankruptcy.

91 comments on “Six ways to deal with collection agents

  1. A creditor at a collection agency advised me never to settle as that will look bad on your credit score, I have paid of my debt in full but they are still appearing on my credit as balance 0 but my score did not boost up as I thought it would, how long does it take for them to update the status and comments and after paying the collection agency do I need to advise or check with anyone else to fix my credit score? Lost!

    Reply

  2. You are screwed…if they didn't remove the R9 rating it will be on there for seven years. You were better off not paying anything.

    Reply

    • deb what do you mean? is it that after seven years if you do not pay your debt is it removed or wriitten off. the one bank write me off and it took me 2 years to find my information that i owe money but a couple off years ago the branch told me something else that is not the truth that is very misleading and they would not let me in the bank and are very rude and never told me that this is the true matter because i went to another bank branch far away and finnally got some approtaite information. that i have been mislead under false info due to so called identity theft and i myself never had that id that the bank told me was the probelm . this is only the begining again.g

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  84. When dealing with collection agencies, you have to realize, as you’ve said, that they will be satisfied with you paying just a part of your debt and they are more willing to settle to a deal than the initial creditor, wanting to have their commission. That’s why is vital to be informed who you’re talking to. The collection agencies are less inclined to sue you, even if they menace you with suing.
    It’s also important to keep in mind that in some provinces you have the right to ask them to stop bothering you, especially if they begin to call at your workplace. They have the right to remind you about your debts, but they cannot just call you forever.
    It’s certainly better to repair your credit rating, because unpaid credit might complicate your financial existence a lot, getting the R9 on your report. A debt settlement would definitely raise your credit score and will erase the debt.

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    • Ok Well my debt should be written off by now its been 6 years and coming up to 7 in like 4 months.. it was in BC that i got the debt and I'm just wondering should it be written off by now?

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  85. I do not care about collection agencies, nor do I care about my credit report, because I do not live my life nor intend to live it on credit. I decided long ago to keep all cash ,buy nothing, and believe me, I am not afraid to say I have millions in cash! I simply do not pay people who threaten and use a threat of credit agencies. In fact, the moment the remind me that if I do not get it settled and I can end up at the credit agency, is the moment I tell them to do so. For I do not rely on credit! And you should all do the same.

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