How to Deal With Collection Agencies

March 7, 2013

151526414If you’ve ever had the displeasure of dealing with collection agencies you know what a pain in the neck they can be. They will call you umpteen times a day, send you threatening letters, and maybe even call your neighbors. The whole point of the effort is to get you to pay money so they will go away.

If you owe someone money that you have been unable to pay, you might not be able to make the collection agency go away. But you may be able to find a better way to live with them, at least until you have the money to pay and settle the account.

Don’t Let Them Intimidate You

The first thing you have to understand is that what you’re being subject to is a game of intimidation. The collector cannot put you in jail, and probably can’t even bring you before a judge. In fact, the collector has very little control over you, other than to harass you into oblivion.

There’s something you need to know about collection agencies. They work on commission! They get a percentage of whatever money they collect from you as compensation for their so-called service. This is why they seem so relentless in coming after you.

So the next time a collection agent calls trying to scare you half to death, just remind yourself that this person is a commissioned salesman and wants to get paid. That will put the entire exchange in proper perspective.

It will also help if you know what your rights are in dealing with collection agents. You can get very detailed information on this through the Fair Debt Collections Practices Act, or FDCPA. The Act contains federal law as it pertains to debt collection. Debt collectors must work within certain parameters. If they step outside those lines, they may be violating the law.

The next time a collection agent contacts you, just recite some of the rules from FDCPA and see how that affects his behavior. At that moment he will realize he’s dealing with somebody who has superior knowledge.

Don’t Answer the Phone Unless You Have the Money to Pay

Collection agencies have nothing to lose by contacting you several times a day. No matter how tempted you are answer the phone, don’t do it unless you have sufficient money to settle the debt. Anything less is just an invitation to more phone calls.

Let any phone calls you get go into voicemail, and then screen them responding only to non-collector calls. And as far the collection calls . . . just delete them!

You are under no obligation to take a phone call from a collection agent. Since doing so will only serve to upset you, it is in your best interest to not speak to them unless you’re in a position to negotiate a settlement.

Offer to Settle for Less

A collection agent will always try to collect the full amount of the debt owed. But never forget that he’s a commissioned salesman. If you don’t pay something, he won’t get paid anything. No matter what he may tell you, he will almost always accept less than the face amount in full settlement of the debt.

Let’s say that you owe $5,000 on the debt the agent is trying to collect and you happen to have $3,000 sitting in your bank account. Offer the collection agency $1,000! He will kick and scream as part of a tantrum to convince you that he is not able to accept such a small offer. Fine, let him counter offer.

You probably will not be able to settle the debt for $1,000, but just the fact that you are ready and willing to make some sort of settlement will get the negotiation process started. It will be a situation of offer/counter-offer, not at all unlike the process that takes place when you buy a car.

By the time you’re done with this exchange, it is highly likely that you will ultimately settle your $5,000 debt for something substantially less.

Never give them financial information either, such as bank information or income figures. They’ll just use it against you don’t need that.

Get Agreements in Writing

There are three commandments for settling a debt with a collection agency:

  1. Never offer a settlement amount that you are not able to pay,
  2. All settlement terms must be confirmed by the collection agency in writing, and
  3. Never send any money to a collection agency until you have received the settlement confirmation letter.

If you send money to a collection agency on the basis of an oral agreement, they can accept the money and revert to the original amount of debt. After all, you will have nothing in writing to prove they agreed to settle for less.

One more thing . . . as part of the settlement agreement, you must get the collection agency to agree to removing the collection from your credit report, and that means all three credit repositories. The letter should also confirm that the debt has been settled, that way you can send it to any credit repositories that may not be reporting the obligation as settled.

If you’re dealing with a collection agency for the first time, you’ll need to get tough. That means speaking with them as little as possible, and making sure that you have the upper hand on the few occasions when you do.

Have you ever dealt with a collection agency before? Do you have any suggestions that you can make for someone who is dealing with one now? Leave a comment!


Will this article help you save or earn more money? Get others like it simply by entering your email address below. Your email is used only for delivering daily money tips and you can opt out of delivery at any time. Click here to see all your free subscription options.


Kevin Mercadante is professional personal finance blogger, and the owner of his own personal finance blog, He has backgrounds in both accounting and the mortgage industry. He lives in Atlanta with his wife and two teenage kids and can be followed on Twitter at @OutOfYourRut.

All posts by


6 Responses to How to Deal With Collection Agencies

  • KDB

    It can be scary to get a call from a collector. But if you are honest, you talk with them, and try to work something out, they’re usually not that bad. Most of the horror stories you read about are from people who try to get out of paying. Sure, if you end up in collections money must be real tight, but you still owe the money, so unless you are working with a bankruptcy lawyer, at least try to work out a deal that’s good for you and the collector.

    • Kevin

      Agreed, as long as you have some money to work out an arrangement, otherwise dealing with them at all will be worse than a waste of your time.

  • Connie Lipton

    You have made many helpful and accurate statements about how to deal with a collection agency. Consumers have many protections when dealing with collection agencies and knowing the laws definitely can empower a debtor. The industry has a terrible reputation for just the reasons you mentioned, especially harassment. It’s always good to be educated and especially when dealing with a consumer debt collector.

    • Kevin

      Hi Connie–I think it helps if you can get out of “helpless victim” mode, and think more proactively. Ignore them until you are ready to settle. That’s about all you can do. If you have no money to settle, then all they’ll do is harass you, and you can’t let that happen.

  • Kevin

    Hi Lee, that obviously is true, but this post is written for people who are past that point. Please keep in mind too that some people are dealing with collection agencies because of a job loss and a prolonged period of unemployment (or even re-employment at a far lower level). Then there are those beset with medical problems that could have resulted in either a wave of uncovered medical expenses, the loss of income, or both.

  • Lee Putnam

    Or better yet, pay your bills. Have money set back for emergencies, don’t buy the new car, big screen TV, clothes from the “it” place, whatever. Live within your means. If you do have a bill that you can’t pay immediately (hospital or the like), contact them first. Set up a payment plan and problem solved.