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Tip of the Week

Debt Collection


Unfortunately, from time to time, debt gets out of hand. Unforeseen emergencies, medical expenses, job loss can all trigger financial chaos, leaving some people no longer able to pay their bills on time. Its very stressful to have the bills pile up and debt collectors calling.

It's something most consumers dread -- a debt collector calling to ask about an unpaid credit card debt, past due student loan or medical debt. However, consumer credit counselors, debt collectors and state regulators all agree that ignoring debt collectors' letters and phone calls is a bad idea.

Below are some tips offered by creditcard.com, a site dedicated to educating consumers on credit cards:

1. Avoid debt collection altogether. Try to negotiate with the original creditor and work out a reasonable payment arrangement before the account is sold to a third-party debt collector.

2. Educate yourself about your rights. The U.S. Federal Trade Commission (FTC) has several publications designed to educate consumers about their rights under the Fair Debt Collection Practices Act. Harassing and nuisance phone calls, threats and abusive language are illegal and should be reported to the FTC and your state attorney general's office.

3. Take your head out of the sand. Don't ignore letters or phone calls about debts or court notices about debt lawsuits. The law allows consumers to send written requests for verification of debt within 30 days of being contacted by a debt collector. Don't dawdle if the debt isn't yours: Debt collectors can place negative information on your credit report that remains there for seven years, which can affect your ability to get a mortgage or other loans, cheaper car insurance rates or even jobs.

5. Keep copies and records. There is no consensus on how long documents should be kept. Some experts say keep them as long as you would keep tax documents; some believe they should be kept for as long as the statute of limitations for the state where the original purchase was made or your home state, whichever is longer. Still, others say keep documents -- especially proof of settlement or resolution of debts -- forever.

6. Safeguard bank accounts. Debt collectors can file suit against consumers for nonpayment of debts. Freezing savings or checking accounts is one of the court-ordered options for collecting debts. This can be extremely problematic for family budgets and cash flow, and experts advise having separate bank accounts for funds such as Social Security or disability checks, which are exempt and cannot be used as a source of court-ordered debt payments.

7. Don't make it too easy. Some experts say consumers should avoid giving debt collectors their bank account and routing numbers. Make payments with money orders or some other third-party payment service so that you have proof of payment but avoid paying with a personal check. They also advise against allowing collectors to make direct electronic withdrawals from bank accounts.

9. Get it in writing. Any agreements for making debt collection payments should be confirmed in writing and signed by a representative of the debt collector before sending in any payments. This avoids misunderstandings about the amounts to be paid or time period to make payments.

10. Certify that mail Letters can be lost in the mail. Most experts advise sending all correspondence with debt collectors via certified mail; some suggest getting a return receipt as proof that your letter was received. Need help composing your letters? See the CreditCards.com sample letters to debt collectors.

Check back next week for more tips on dealing with debt.

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Montana Credit Unions for Community Development (or MCUCD) is the award-winning, charitable arm of the Montana Credit Union Network. A state-wide nonprofit organization, MCUCD works together with the state's credit unions to improve the lives and financial independence of all Montanans.