What To Do If An Account Is Sent To Collections

If you do not pay a bill on time, the lender has the option of writing off your account as a bad debt and sending it to a collection agency. Creditors aren't required to wait a certain period of time before turning an account over to collections, but most do so when an account is three to four months past due and they believe they can't collect it. (It's a common myth, by the way, that as long as you send the creditor something -- even $1 -- it can't turn your account over to collections.)

Once your account is sent to an outside collection agency, you'll have to deal with the agency - not the original creditor. While collection agencies may be persistent in their efforts, they are required to follow federal, and sometimes state laws, that prevent harrassment and deceptive practices. A collection agency, for example, cannot:

• Call you repeatedly for the purpose of harrassing you,

• Call before 8 a.m. or after 9 p.m.

• Call you at work if your employer prohibits it,

• Use abusive or obscene language

• Publish your name in a list of "deadbeats."

• Here are some tips for dealing with a collection agency:

Pay as soon as possible. If you are in dire financial straits, explain your situation and tell the collector that you simply cannot pay the bill now. If, however, you can pay some or all of the bill, you should. An unpaid collection account listed on your credit report is considered very serious. The sooner you can pay it off, the better, as far as your credit record is concerned. (And it will probably reduce your level of stress, too!)

Some creditors will negotiate - offering to take less than the total amount due in exchange for quick payment. For example, one collector might offer to settle a $2000 debt for $1500 if you can pay within a week. Understand that the IRS considers "forgiveness of a debt" a taxable activity and treats the amount forgiven as income for tax purposes.

Keep good records. Keep copies of all correspondence, and make copies of any letters you send to the collection agency. Also keep a written record of whom you spoke with, when and what was agreed. If there are discrepancies later, these records may prove to be very helpful.

Don't make promises you can't keep - and keep the ones you make. Don't allow yourself to feel pressured into making a payment you can't afford. Neither you or the collection agency wins if you agree to payments but don't keep up with them. If you need time to think about an offer from an agency, ask for it. Once you do agree to a payment schedule, stick to it.

Avoiding collections: Since collection accounts are considered very negative and will hurt your credit for years to come, your best strategy is to try to avoid them altogether. If you find yourself unable to pay a bill, call the creditor immediately to see if you can negotiate a reduced payment schedule. Another option is to work with a nonprofit counseling agency which will negotiate with your creditors for you . Take the initiative to ask for help, even if you don't feel like dealing with the problem. If you don't keep the lines of communication open with your creditors, you may hear from a collection agency instead!