“Neither a borrower, nor a lender be. For loan oft loses both itself and friend.”
William Shakespeare, Hamlet – Act I, Scene III
Good advice overall, however it’s next to impossible to live without incurring debt these days. Housing costs far more than most people can realistically hope to purchase without incurring debt. The same is true when it comes to acquiring personal transportation, education or funding a business enterprise.
Of course, each of those is typically referred to as good debt. That is, debt that will ultimately net you more than it cost you.
Bad debt is that which is taken on to fulfill a desire, rather than a need, and will eventually cost you more than it got you. Further, interest rates associated with bad debt tend to be much higher and compounds. This makes “bad debt” more likely to get out of hand and wind up in debt collection.
What is Debt Collection?
Lenders who have tried to exact payment on a debt to no avail will often sell that debt to a collection agency. Collection agencies specialize in tracking people down and shaking them by their heels until the money falls from their pockets.
Okay, that’s a bit of an exaggeration, in that the Fair Debt Collection Practices Act prevents collection agencies from engaging in what could be considered abusive, unfair and/or deceptive behaviors to get a debtor to cough up the cash. So, with that in mind, should you pay a debt collection agency?
Yes, and no. It depends.
When You Should Not Pay
People staff debt collection agencies. And, people, as we all know, do make mistakes. The collector could be contacting you about a debt you do not owe. Or, they could be contacting you about a debt that’s too old to take to court. In other instances, the agency contacting you might not even be the owner of the debt.
In each of these circumstances, you’re being asked to pay something to someone to whom you legally owe nothing.
If contacted by a debt collection agent, do not admit responsibility for the debt, don’t offer to send money, and don’t send money. Do some research to be certain the debt is indeed yours and the person contacting you is doing so within the bounds of the law.
Dispute the debt and ask for verification, even if it seems like you might be responsible for it.
When You Should Pay
If the debt is proven legitimate, it is likely to be in your best interest to make some arrangements to repay the debt. After all, in extreme circumstances, debt collectors have several remedies available to them. In fact, a collection agency can access your bank account.
However, rather than offering to pay the full amount, try to negotiate the balance down as much as possible to be considered paid in full. In some cases, you may try to talk to the original creditor, rather than the collections agent. It all depends on how far gone the account has become.
Granted, negotiating a settlement agreement with a debt collector can be both time-consuming and arduous. Some people turn to debt relief companies like Freedom Debt Relief to handle negotiations on their behalf to avoid the hassle.
The Bottom Line
Again, though, you should not reflexively accept responsibility for a debt and/or send money just because someone claiming to be from a collection agency has contacted you. People do make mistakes, and there are a lot of scam artists out there trying to prey on people. As you should with any other type of financial transaction, always conduct your due diligence.