6 Secrets Debt Collectors wish you never knew
By: Milagros DuBouchet
The world of debt collection is a mystery to most people. One thing we do know is that they can be very aggressive when it comes to collecting money. We know all about the annoying phone calls at 8am and the letters that cause nothing but anxiety. Some debt collectors are easy to work with; others can be incredibly difficult. In my work, I speak to debt collectors on a daily basis. I speak on behalf of my clients when they’ve been too intimidated, or are unsure how to communicate with them. The key to getting the most out of a situation with a collection agency is to learn their secrets, and use them to your advantage.
Secret #1 – They can reduce up to 50% of your original debt. This is the rule of thumb. Debt collectors know when they’re speaking with someone who doesn’t know the tricks of the trade. They will lie and tell you that you need to pay the full balance. This is not true! Tap into your negotiation skills and ask them to make a “settlement offer” so that you can save some money while you reduce your debt load.
Secret #2 –The amount of debt “forgiven” is added to your taxable income for the year. If you receive a debt settlement for over $600, the forgiven amount is then added to your taxable income for the year. Essentially, you can save money now with a debt settlement, but you must eventually pay taxes on this amount!
Secret #3 – Negotiate near the end of the month and you may get a better deal. Debt collectors get paid on commission for every payment agreement made with someone during the month. This easily explains their ruthless tactics to rake in as much cash as possible. Their monthly bonus depends on how good they are at getting you to pay—no matter what your financial situation is. With that said, they are more likely to make better settlement offers if you negotiate with them towards the end of the month.
Secret #4 – You can negotiate what they place on your credit report. When your debt collector is willing to accept less than the full balance, they usually note this on your credit report as well. As you can imagine, having a remark such as “paid collection” on your credit report is better than having it say “settled for less than full balance”. This is also negotiable. You should ask them to accept your partial payment as a payment in full, and have them note this on your report as well. If they agree, make sure you get that in writing.
Secret #5 – You can potentially pay NONE of the amount they claim. Debt Validation is a legal loophole that simply states that if you ask the debt collector to send you physical proof that the debt in question is in fact yours, they have 30 days to do so. If they cannot locate any original mitigating documents (which most collection agencies cannot), or if they fail to respond within the 30-day time frame, they must remove the item in question from your credit report. They are no longer able to collect on this debt. One the other hand, beware—they may end up selling your account to another collection agency instead!
Secret #6 – Anything you say can be used against you. A debt collector may ask you some personal questions and you may feel obliged to answer them. Questions such as “Do you have a bank account?” “Are you currently employed?” “Do you own a home or car?” are all part of their ploy to get more ammo to use against you. If you’re employed, they can potentially sue you and garnish a portion of your wages. If you have a bank account, they can sue you and freeze the funds in your account. If you own a home or car, they can sue you and put a lean on your assets. If asked any of these questions, answer with a simple no, or tell them you don’t feel comfortable sharing that information.
Milagros DuBouchet is a personal Financial Counselor in New York City. Her focus is to provide formal financial education training and personal financial counseling services to low-income Americans.