Tips From a Former Bill Collector

Walking is great exercise. It also gives you the opportunity to observe things more closely than driving by at 25 m.p.h. A new trend I have been noticing on my daily walks is more cars in the driveways of my neighbors in the middle of the week. My community, like most, is grappling with lay-offs, furloughs and other painful signs of the current recession. And, while it's not something we talk about at cocktail parties, there are probably some who are finding it difficult to make loan or credit card payments on time. If they haven't yet, they will likely be receiving calls from bill collectors in the near future. As someone who's been on the dialing end of these calls, I'd offer the following thoughts. First, there are some things you need to know about bill collectors.

1. Bill collectors are not there to make your life difficult or to judge you. They are people being paid to get the property of the lender back. While their performance can be based on a number of things, typically, the more they collect, the more money they make. Avoiding a conversation with them is not a good idea - they'll call back, it's their job.
2. They appreciate honesty - people lie to them all day long. Be honest about your situation and your ability to make a payment.
3. Don't send post-dated checks or give a bill collector your checking account number. While most bill collectors are honest, some may try to cash the checks early or try to draw payments from your checking account. If you don't have the funds, you will be hit with non-sufficient-funds fees from your bank. Most creditors have the ability to do an electronic funds transfer if you contact them the day you have the money available. You may also be able to do this online when the funds are in your checking account. Ask about these options rather than sending a postdated check. (NOTE: If you are asked to pay an electronic funds transfer fee, ask them to waive it. If the first collector "can't", ask to speak with a supervisor. Your money should be going toward meeting your minimum payment requirements, not earning fees for the lender.)
4. While a bill collector will usually start by demanding all of the money you owe and ask that you pay it immediately, they are generally willing and able to negotiate. Typically, the more you owe and the further delinquent you are, the more flexibility they have. If you have only missed a payment or two, you may be able to get late fees removed or interest rates reduced, once you make payment. If you are further delinquent, you may be able to negotiate for principal reduction or lower monthly payments. PLEASE NOTE: This is NOT a recommendation to wait until you are in real trouble to negotiate. That strategy will severely damage your credit report and credit scores and will cost you far more in the long run. Before you start any negotiation, you need to have a strong grasp on your current budget and financial situation (keep reading for some tips on that).

Second, you need to be realistic about your budget and what you can pay. Here are some tips to consider:

1. Make sure the necessities are paid for first. This includes food, housing (mortgage or rent payments), necessary utilities (HBO is not a necessity) and transportation. This will give you your new stripped-down budget. You won't like it, but hopefully this is only temporary!
2. Paying unsecured loans like student loans and credit cards has to be a secondary priority. One word of warning, if you can maintain minimum payments on all of your cards, that is a better strategy than making bigger payments on one card while ignoring the others. The reason for this is that the credit card companies report your account each month to the consumer credit bureaus. If lenders see your credit report deteriorating, even the company you are paying may close your account. It is difficult to get by without at least one credit card.
3. Once you've set a budget you will know what you have left over for these non-essential debt payments. This is all you should ever agree to pay a bill collector.
4. In order to make sure you get as much mileage out of this pool of money as you can, you should review all of the non-essential debt payments you have each month to determine if you can make them with your new stripped-down budget. If not, it's time to negotiate for lower payments.
5. If you need help, don't be afraid to ask. Sometimes consumer credit counseling is the right thing for you. A legitimate credit-counseling agency can help you with your budget and with negotiating lower payments. For a list of reputable services, check out the National Federation of Credit Counselors website at nfcc.org.
6. Don't do this alone. It is important to communicate with your spouse and any adult children who live with you so that everyone knows the plan. A united front when speaking with a collector is important.

Following these tips should take some of the angst out of dealing with bill collectors, and allow you to take better control of your financial situation.