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What do I do if I'm contacted by a collection agency?

Stay Calm

Your account came to the collection office from someone who values your business. However, just as you depend on an income to pay rent, groceries and other necessities, those who extend credit must have payment for their goods and services in order to pay their bills and stay in business. Instead of being asked to pay cash, you were given credit, and your account has been unpaid for quite some time. Now it's time to find a solution.

Contact the collection office

If you believe you don't owe the bill, tell the collection office. If you do owe it, tell the collection office when they can expect your payment. If you cannot pay it, tell the collector why. Remember that the collector can work with you to resolve the problem. Failure to contact the collection office can imply that you're evading a just debt. Whatever the reason for nonpayment in the past, the matter can't be resolved if you don't contact the office.

Let them help you

While collecting past due accounts is a collector's business, helping people solve their financial problems is their commitment. Collectors are experienced in credit and collections and are able to help people who are willing to work with them. Many collectors receive letters of thanks from people they have helped.

The Fair Debt Collection Practices Act

Both the Colorado and Federal Fair Debt Collection Practices Act exists to protect consumers from unfair or abusive collection practices.   Both laws are extensive and set forth what collectors can and cannot do.  If you believe a collector is breaking the law, you should contact the agency owner or manager.  For more information on the FDPCA, write to:

American Collectors Association, Inc.
Post Office Box 39106
 

In Colorado, contact:

Collection Agency Board
1550 Sherman Street, 5th Floor
Denver, CO 80202

Other web-based resources that consumers may find useful are the National Foundation for Consumer Credit and Debtors Anonymous.

Solving Your Payment Problems

Have you ever... Tried to use your MasterCard to pay off your Visa? Had too much month left at the end of the money? Needed to decide which bills you'd pay and which you'd let slide?

If you answered "yes" to any of these questions, you are like millions of other people who have experienced a money crunch at some time in their lives.  But what can you do if you find yourself having trouble paying your bills?

Take stock of your finances

Now is a good time to list all of the companies and people to whom you owe money. Add it up to find exactly how much you owe.  If you don't know how much you owe on some item, such as a credit card, take the most recent statement and add the purchases you have made since the statement.

Now that you know exactly how much you owe in total and to whom, add up the payments that you must make this month.  The next step is to add up all of the money that you will have coming in this month, including salary, interest on accounts - anything that you can count on receiving for sure.  After subtracting the amount of money that you will need to pay rent or make house payments and pay for food and other absolute necessities, do you have enough to make all of your payments this month?  If not, the next step is to decide which of the bills you will pay right away.  Then you will need to

Contact your creditors

Once you discover that you will not be able to make a payment on time, contact your creditor, the business or person to whom you owe the money, right away.  Explain your financial situation frankly and make a commitment about how and when you will pay the bill.  Creditors are more likely to be understanding if you contact them before your payment is overdue.  They may be willing to let you skip a couple of payments and add them on to the end of the loan, or work with you to arrive at a workable payment plan.

Looking at income and expenses

Increasing your income can be tough if you've just lost your job, but you may have sources of money that you haven't considered.  Do you have savings bonds or stocks that can be sold?  Can you hold a garage sale to sell household items that you no longer need?  Perhaps you have a stamp collection or other valuables that you can turn into cash.

Decreasing expenses is often easier.  Can you save money on food by bringing you lunch to work, using coupons at the grocery store or buying fewer convenience foods?  Perhaps you can save money on entertainment by looking for things to do that are free.  For example, your local library may lend videotapes of movies.  Perhaps you can put off buying new items such as clothing for awhile.

Make a budget

To make a budget, list all of the items you spend money on each month.  Be sure to include the bills that don't come every month.   For example, if your car insurance bill comes every six months, divide the amount of your half-year payment by six to get the monthly amount you must budget for car insurance.  That's the amount you must set aside each month in order to have the money to cover the bill when it comes.  After listing each item, take a look at the total amount of money you expect to have coming in each month and decide how much you can afford to spend on each item.  Be sure to budget so that you have some income left over that you can use to pay off your debts.  payments each month, try to put some of this money into a savings account.

Track what you spend

Making a budget helps you to take control of your finances, but you will also need to record every purchase that you make.  Doing this will help you see whether you are following your budget and will also show you where you may need to make adjustments.  You may also see areas where you are spending money unnecessarily but hadn't realized it.  Most of all, you will now have the answer to the question: where does it all go?

If a collector calls

Stay calm and remember that debt collectors are trained to solve payment problems.  Be honest with the collector about your ability or inability to pay right away and let him or her work with you to make a reasonable payment plan.

Get help if you need it

If you take stock of your finances, contact your creditors, make a budget and track expenses, and still have problems, consider calling the non-profit Consumer Credit Counseling Service.  At little or no fee, CCCS will help you make a realistic budget and nearest you, call the 24-hour toll-free number, 1-800-388-2227.

Suggested budget items