Tag: Debt

How to Ensure a Debt Collection Is Legitimate

Your phone rings. Someone on the other end is claiming to work for a collection agency of some kind. He tells you that the purpose of this call is to collect a debt. A debt which you either do not remember owing or is so old that you thought it was gone. How do you ensure this is legitimately collectible?

The caller must identify who he is and who he works for. A legitimate debt collector will supply a phone number, business name and mailing address. A scammer will fudge around this or claim he does not have to supply this information.

The majority of collection agencies will send you a letter prior to calling you. Federal law requires them to send you a letter about the debt no later than five days after their first contact with you. Sending the letter first ensures they are following the law and eliminates the surprise to you when they call.

You have the right to have the collection agency verify the debt. You must do this in writing and I recommend you send the letter via certified mail with return receipt so you have proof they received the letter. A sample letter from the Consumer Financial Protection Bureau can be found at consumerfinance.gov.

Though there is no federal definition of what constitutes a debt verification, the assumption is that if they can prove to a judge that you owe the debt, then that is acceptable verification. So you should receive one or more of these items:

  • A copy of the original, signed contract.
  • A copy of the charge-off statement from the original creditor.
  • A copy of at least one cancelled check paid from you to the original creditor.
  • Information from the creditor that ties you with the debt (the creditor’s name, an account number, the charged off amount, the current balance and the last four digits of your social security number).

The collection agency has thirty days to supply this verification to you. During this time period, the collection agency cannot attempt to collect this debt in any manner and they cannot report this debt to the credit bureaus (note the original creditor can still report it).

Some things you should do during this thirty day period:

  • Check your credit report to make sure the debt is truly yours. The original creditor will report this as “Charged Off” if it has been transferred or sold to a collection agency. You may also determine the debt is too old under your state’s statute of limitations for the collector to sue you.
  • Contact the original creditor to determine who they sold the debt to. They can tell you this information. If the debt has been sold numerous times, you will have to follow the “chain of title” to learn who the actual owner is. And if it has been sold numerous times, the chances of this collection agency being able to verify the debt drops dramatically.

If the verification cannot be supplied to you within the thirty days, then the debt is uncollectible. But if they do verify it, the debt is collectible and the collection agency will add this to your credit report.

According to Clearpoint Credit Counseling Solutions, only 51% of debts are verified by collection agencies ( FTC Data on Debt Verification ). So you have a 50-50 chance of this collection disappearing on its own!

If you have any questions about this debt not being yours, do not spend time on the phone with the debt collector. You do not want to give any hint of acknowledging the debt is yours. Just tell the collector that you will be sending a verification request, confirm the mailing address to send it to and politely end the call. Then get that letter sent out ASAP!

No Debt Is Good: Aiming For A Debt-Free Life

Did you know that you’re being deceived? Right now, everywhere. On TV. In the newspaper. On the radio. In magazines. You’re getting the same message over and over again: “buy now, pay later”; “consolidate your debt into one easy monthly payment”; “get a secure line of credit”. Or the perennial favorite, “don’t worry, it’s good debt”.

The truth is, there is no such thing as good debt. Debt is debt. It’s money you owe someone, money that needs to be paid back at some point in the future. “Good debt” is a misnomer. There’s better debt, sure, because there’s also really bad debt. But debt is never good. Not really.

We live in a debt-ridden society. We’re encouraged to buy things on credit all the time. Why? Because it’s a profitable business for lenders. They’re not doing it out of the goodness of their hearts. They’re in it to make money, and their target is you.

Of course, it’s hard to live entirely without debt. To buy a home these days you almost always need some kind of mortgage, this is true — few people can afford a house outright, especially at the beginning of their careers and families. But you don’t have to be in debt for the rest of your life. A mortgage is meant to be a temporary debt, one backed by the (normally) stable value of the property you purchased with it. It should be for a reasonable, affordable amount that can be paid back within 10 to 20 years of the purchase. And you should have some of your own equity in the house right from the start. But that’s not what people do anymore. They get mortgages for 100% of the appraised value of the house. Worse yet, they get interest-only mortgages that leave the principal — the amount you borrowed — untouched. Is it no wonder that these people eventually find themselves drowning in debt?

But it goes beyond mortgages. A debt mentality pervades our society. Once you have equity in your home, for example, the banks urge you to “free up” the money with home equity loans and secured credit lines. Use the money to better your life, they say, by renovating the house, taking that big vacation you’ve always wanted, or — here it comes — consolidating your other debt.

Your other debt? Sure. You think the only debt people have is mortgage debt? No, they have plenty of other debt. It’s a banker’s wet dream out there today… Credit lines. Cash advances. Overdraft coverage. Automatic credit card limit increases. Pay nothing now. If you’re not careful, you can build up a lot of debt very quickly.

And that’s the problem: those debts have to be repaid sometime. Rack up too much debt and soon you’ll be worrying about the monthly payments. Your peace of mind will suffer, and possibly other things like your marriage and your job. Is that the kind of price you’re willing to pay in order to have things you couldn’t otherwise afford?

The solution isn’t debt relief or debt consolidation. It’s debt avoidance. You should do everything in your power to avoid debt. Because too much debt will tear you down, physically and mentally.

What if you already have a lot of debt? There are things you can do. Yes, you can consider consolidating the debt, but that will only work if you’re able to stop accumulating more debt once your current payments are lowered. Otherwise, you need to attack your debt using a step-by-step plan that involves paying off the highest-interest debt as quickly as possible, then using the money you free from that debt payment to pay the next-highest debt, and so on. It’s the snowball debt reduction method, and it works.

The key to all of this is willpower. Make the commitment today to be debt free as soon as possible. The peace of mind it gives you will make it all worthwhile in the end.

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