What You Should Know about Dealing with Debt Collection Agencies

Anyone who has suffered the indignity and frustration of being chased by a collection agency can attest to just how unrelenting, remorseless, and aggressive they can be. No one likes being in debt and no one likes being hassled, but if you have a collection account, you’ll be forced to endure these issues and many more.

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There are no quick, simple, and affordable ways to stop these accounts from being created in the first place. You might not want to hear it, but the only way you can escape one of these agencies is to pay your debts or negotiate with your creditors. However, there are a few things you can do to limit the hassle and keep those collectors in check.

When will Debt Collectors Get Involved?

A default is seriously damaging to a borrower. It can reduce their credit score, leave a derogatory mark on their credit report, and make life difficult for at least the next few years. But defaults aren’t great news for lenders, either. They are costly, time-consuming—much more trouble than they’re worth.

If you miss a payment, your creditor will try to negotiate with you. They’ll consider refinancing options and even grace periods if they believe it will help you make payments. If you snub those letters and phone calls, or you persistently ignore your obligations, the debt will be sold to a collection agency.

Your original creditors may hire this agency to collect the debt on their behalf; they may sell it to them entirely, wiping their hands clean and cutting their losses in the process.
In either case, it’s a very costly process for the creditor. If they are assigned the debt, they’ll charge a fee that can be as high as 60% of the total balance and they may also charge the creditor for every call they make and letter they send.

In other words, they are incentivized to hassle you, not only because it increases the odds of a collection, but because they’re increasing their bill every time they do so.

If the debt is purchased, it’s often for cents on the dollar and the older the debt it is, the cheaper it will be. As an example, time-barred debt, which is debt that has exceeded the statute of limitations, is purchased in bulk for just a couple cents per dollar of debt. This is something you need to keep in mind as a borrower, because it means that the agency is going to profit from your debt even if you agree to pay just a small percentage of it.

Of course, many debtors won’t pay anything at all, and collection agencies have costs to cover—they won’t offer to clear your debt for a few bucks and a smile, but you probably have more room to maneuver then you think.

What is a Collection Agency Not Allowed to Do?

Every year more consumers complain to the Federal Trade Commission (FTC) about debt collectors than any other profession. The Fair Debt Collection Practices Act (FDCPA), which we’ll discuss in this guide, was created to try and keep them in check. However, they still do things that are either on the line or blatantly over it.

They’re for-profit companies that thrive on convincing debtors to pay and the more money they get from those debtors, the higher their profits will be. Some collectors will be nothing but honest, helpful, and professional, but they are in the minority.

A collection agency is not allowed to do any of the following:

Claim to Work for the Government

Unsecured debts like private student loans and credit card debt is at the back of the line when it comes to collecting. It’s a different story with government debt though and collectors have been known to use this to their advantage and pretend to be from the government.  

There have been several publicized cases in which collectors have claimed to work for the federal government, scaring debtors into repaying their debts and doing so in a way that greatly favors the agency (full settlements, fast payments, etc.,).

Unless you have a judgment against you or have declared bankruptcy, the courts and the government have no interest in your debt.

Claim Dire Consequences

Debt collectors have been known to threaten arrest, bankruptcy, and other serious consequences, none of which they can actually do. Some of these claims are made in anger and frustration, when they realize that they’re getting nowhere with their usual rhetoric, others are premediated. 

In any case, if there isn’t a judgment against you then they don’t have the power to arrest you. This applies even if the statute of limitations has not yet passed.

Harass You

A debt collector can call you and send you letters, and they can also use the internet and other public information to track you down. However, they can’t threaten you, use profane language or call you at inappropriate times.

You can also contact them and request they don’t contact you at work or contact any of your loved ones. As soon as this letter is received then they must obey it.

Make Your Debt Public

Debt is common and millions of Americans are struggling with it, but there is still a sense of shame associated with it and many of those debtors suffer in silence, not telling their friends or their loved ones. Debt collectors have been known to use this against them, threatening to publicize debts if they are not paid and even contacting their loved ones.

A debt collector can contact friends and loved ones to track you down, but they can’t continue to contact them if you explicitly tell them not to, and they can’t provide them with details of your debt. They definitely can’t announce your debt in any public forum and if they threaten to do so then they are either posturing or are about to commit an illegal act. 

What is a Collection Agency Allowed to Do?

The Federal Trade Commission has placed collection agencies on a pretty short leash, but they do still have some power and the things they are allowed to do might surprise you:

Try to Collect on Expired Debt

If the statute of limitations has expired, a collection agency can’t sue you for a debt and you’re no longer legally responsible for it. However, that doesn’t mean they have to stop chasing you for it. They will still contact you and insist that you repay the debt, maintaining that you have a moral obligation to do so, even though the original creditor probably won’t see a single cent of the payment.

If you agree to their demands and offer to repay some of the money or sign a contract, you may void the statute of limitations and become responsible for the debt again.

Sue You

If the collection agency can’t collect the debt by negotiating with you, they may file a lawsuit against you. This is a last resort as it’s a lengthy and costly process, but if the debt is large enough and the consumer is stubborn enough, they’ll do it.

Sell Your Debt

Your creditor may sell your debt after just a few months, at which point a collection agency will take over. But that doesn’t mean that your debt will disappear if that agency can’t collect. They are well within their rights to sell the debt to someone else, which will restart the collection process and could potentially produce more phone calls, letters, and requests.

Don’t assume that you’ve dodged a bullet just because one agency has left you alone. If the debt has yet to pass the statute of limitations, there’s a good chance you won’t have heard the last of it.

How to Deal with Debt Collection Agencies

Keep the following in mind when dealing with a collection agency:

  1. Be Fair, Friendly, and Firm: Debt collectors may be seeking to claim money you don’t have, but ultimately, they’re just doing their job and operating within the confines of the law. They’re also human, and if you’re short and aggressive with them, they’ll reciprocate. Be friendly, but don’t let them run over you, and as soon as they change their tone and become aggressive, you can change as well and show them that you’re not going to be pushed over.
  2. Understand Your Rights: As soon as an account goes into collections, a debt collector will try to contact you. At this point, you need to check local laws concerning fair practices and statute of limitations to stay informed about what they can and can’t do.
  3. Don’t Believe Them: If they say something that sounds dubious, don’t accept it as fact. Tell them that you will look into it and leave it at that. You don’t need to make decisions on the spot, and you should never accept anything they say as fact without backing it up first. They may use scare tactics to convince you to pay debts that have passed their statute of limitations or to accept larger settlements/repayments than you can afford.
  4. Keep a Record: If possible, record all conversations you have with debt collectors and request all official offers and statements in written form. That way, if things turn sour then you have more than just your word to back up your side of the story.
  5. Don’t Make Life Easy for Them: Remember, while debt collectors are there to do a job, they’re also seeking massive profits. They’re relying on you rolling over and agreeing to their terms so they can collect a massive profit.
    Don’t make life easy for them. When dealing with debt collectors you need to stand firm, make it abundantly clear that you don’t have much money and can’t afford big settlements. They’ll get the idea eventually and will offer a favorable deal.

Why you Shouldn’t Ignore Them

The main reason you shouldn’t ignore a collection agency is that they can sue you. In fact, it’s pretty much the only reason, but it’s a big one. If that happens then you’re going to be hit with attorneys’ fees and judgments that will make your situation much worse and considerably more expensive.

If the debt has yet to expire then you should respond to the collection agency when they make contact and deal with them in a firm, professional, and calm manner. Dealing with debt collectors isn’t always as difficult or as scary as you might think—many will simply seek to establish a settlement or payment plan and then ensure it follows through. 

What are the Steps to Dealing with Them?

Be very careful how you deal with a collection agency. Keep these steps in mind when dealing with them:

Don’t Pay Anything

They will try to pressure and scare you into paying when they first contact you. This is when they are at their strongest, as they have the advantage of surprise and have caught you unawares. They will pull out all the stops to convince you to pay some or all of the debt, but as soon as you do then you’re acknowledging it and that can have serious repercussions for you.

Instead, ask for more information on the debt. They are required to provide this and contrary to what they might say, you’re not legally obliged to pay them quickly or within a specific timeframe. If the debt is not yours then you have 30 debts to dispute it in writing.

Study the Facts

The agency should send you details regarding the size of the debt, the original creditor, and the consumer responsible for it. Every year the FTC receives tens of thousands of complaints from consumers being asked to repay debts that they are not responsible for. 

They may have the wrong person; they may be asking you to take responsibility for the death of a loved one (see our guide to What Happens to Debt When you Die) or they may be chasing a time-barred debt. In all cases, you may not be legally obliged to pay.

Understand Your Rights

While debt collectors are forced to adhere to strict codes of conduct, we’re still talking about for-profit companies here and most of them are staffed by collectors who are very good at pressuring consumers into paying.

Only by knowing your rights can you avoid these tactics without denying them any legal privileges. We have discussed all of these rights in this guide, so read it through before you next deal with a collection agency.


Once you have established that the debt is yours and has not expired, you can negotiate payment. As mentioned already, they purchase these debts cheaply and are typically very happy to negotiate a massively reduced settlement, going as low as 20% to 30% of the original amount. You can also negotiate a payment plan or give them a post-dated check, but in most cases, they are only interested in a straight-up settlement.

After all, you don’t exactly have a perfect history when it comes to meeting monthly payments and staying on top of your debt obligations.

Understanding your Rights with Collectors

We’ve covered most of what you need to know with regards to what a debt agency is allowed to do and how a debt appears in your credit report, but it’s worth clarifying your rights when dealing with an original creditor and/or a debt collector. 

What Information is a Debt Collection Agency Required to Provide?

By law, a debt collector is required to provide you with all the following information on a debt they are seeking a collection for:

  • The name of the original creditor.
  • The total amount owed.
  • The name and address of the creditor (including previous details if they have changed).
  • That you have a right to dispute the debt within 30 days.

What are the Rights Guaranteed to Consumers Under the Fair Debt Collection Practices Act (FDCPA)?

The Fair Debt Collection Practices Act (FDCPA) protects your rights when dealing with debt collectors. Everything we’ve discussed in this guide concerning what agencies are not allowed to do is taken from this act. If you believe a debt collector is in violation of this then you can report them to the FTC.

You can also file a complaint with the Consumer Financial Protection Bureau.