How to get debt collectors off your back

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Life's tough enough when layoffs, divorces, injuries or illnesses saddle you with bills that can't be paid. It only gets worse when the collection agencies start calling.

Yes, you owe money and repaying your debt is serious business. But the collectors treat their job as a game, and you'll fare much better if you do so, too.

Like with any game, there are rules. If you want to win, you need to know how to play.

Just follow our 10 steps for dealing with debt collectors:

Step 1. Respond immediately.

Don't ignore a debt collector, even if you don't think the debt is yours. The agency isn't going to stop calling, and if you don't respond, it may sue to obtain a judgment against you.

Step 2. Know your rights.

You may owe money, but you're still entitled to protection. The federal Fair Debt Collection Practices Act puts strict limits on how much harassment you have to put up with. Our 10 things debt collectors can't do explains the restrictions.

The restrictions apply only to independent collection agencies, not in-house billing departments at banks or hospitals. That said, hospitals and banks aren't in the habit of hiring collectors who have thug-like tactics.

Step 3. Get the facts.

By law, collectors must tell you their real names and the name of the agency for which they work. If you have not received a letter from the collection agency, tell the collector you expect a written follow-up with details about how much they claim you owe, the name of the original creditor and what steps to take if you don't believe you owe the money.

Step 4. Dispute inaccuracies.

If the debt isn't yours, is a result of identity theft, has already been paid or is more than what you think you owe, you should file a written dispute within 30 days of the agency's first contact with you. The written notice, which you should have received within five days of first contact, should have instructions on how to dispute the debt.

Once filed, the agency must correct the inaccuracies or prove you owe the debt. The agency cannot resume collection action unless it confirms the debt.

So what happens if you don't send a letter within 30 days? File it anyway. "If it's late, it's late," says Byron Moldo, an attorney with the Beverly Hills-based business law firm Ervin Cohen & Jessup. The deadline is there because after 30 days, the wheels of justice can start turning, Moldo says, but it's not as if you will have to pay if your letter reaches the right people on Day 47.

"I think it's very important to dispute a debt that you knowingly don't owe, and doing it sooner rather than later is important," Moldo says. "The worst thing somebody can do is to ignore a notice."

Why? Eventually you will have to deal with this, even if you're in the right. If a court convicts you, you'll either end up doing the unthinkable -- paying money for a service or product you never purchased -- or you'll have to shell out cash to get the judgment overturned.

Step 5. Document every contact.

Keep a log of who calls and when. Take copious notes on everything said and agreed to. And save everything -- even voice mail messages, if they include promises or threats. Any letters or forms you send should be by certified mail with return receipt requested. In fact, it's good to send a written confirmation setting down the details of anything that you may need to prove later, including payments agreed to, promises or threats made and rude or harassing comments.

Step 6. Select your strategy.

If the debt is legitimate, you essentially have two ways to play your hand:

Option 1. Call their bluff. Send the agency a letter (via certified mail, return receipt requested) telling them not to contact you anymore. After that, the agency can contact you once more to explain how it is going to proceed. If you're lucky, the agency will decide you're not worth its time, and that'll be the last you'll hear from its collectors.

But it's increasingly likely the agency will sue. The rise of lawsuits created with automated software has only made it easier for debt collectors. Agencies have flooded courts with these so-called robo lawsuits.

Our 4-step plan for handling robo lawsuits will help you plan a strategy in case you get sued.

Option 2. Cut a deal. Bluntly ask the collector, "How much do I have to pay to make this go away?" Agencies often are willing to negotiate a partial payment, as little as 30% to 50% of the debt, because they can still turn a profit.

You don't have to pay it all at once. Collection agencies usually are open to monthly payment plans. Just be sure the agency sends the terms in writing.

Step 7. Buy some time.

If you can't agree on a repayment plan, or don't have the money to make a serious offer, the collector will put you into a calling queue -- an automated system to make sure you are regularly pestered.

The best way to get a collector to temporarily stop calling is to make a promise to pay something -- even if it's a trivial amount like $20. Providing they accept the trivial amount (and if it's too trivial, they may not) that should take you out of the queue for at least a week, maybe even a month.

But it's important to keep any promise you make.

Once you make a promise, the collector likely will suggest you set up arrangements so the money is automatically deducted from your bank account or credit card. You don't have to agree to this, but if you do, ask if there is a charge.

Debt collectors don't want to lose any money to bank or credit card fees, and so they tend to pass it onto the consumer.

Step 8. Establish the rules for when and how you can be contacted.

Whether you're seriously negotiating or just buying time, you have the right to tell the collector not to call at work, before 8 a.m. or after 9 p.m. You can even have all calls and correspondence go through your attorney.

Step 9. Seek the right kind of help.

If you get tired of dealing with the calls and can't agree on a repayment plan, it's time to seek outside help. Be wary of companies that promise an easy solution. These credit repair "doctors" and debt consolidators often end up doing more harm than good.

The best place to turn is to contact a member of the National Foundation for Credit Counseling.

"When a person in financial distress comes to an NFCC member agency for assistance, the counselor will do a thorough intake, reviewing all sources of income, current debt obligations and note any past-due accounts," says Gail Cunningham, the NFCC's vice president of marketing.

"Next, the individual and the counselor will work together to construct a workable budget. The counselor will underscore the importance of paying living expenses first, followed by any secured debts and then the creditors."

Cunningham says the majority of NFCC member agencies charge no fee for negotiating with creditors and dispersing payments. "Of those who do, the fee is generally in the $20 range," says Cunningham, adding that nobody will be denied help if they can't pay.

Step 10. Complain about any agency that breaks the law.

When debt collectors cross the line, call them on it. You can use those records to report agencies that break the law to your state's attorney general, the Federal Trade Commission and a local lawyer who specializes in battling bill collectors. Here's where to learn more about reporting bad collection agencies.

It's important to know that whatever happens, the collection agency usually notifies the credit reporting agencies about your delinquency. The debt will then be marked as a "collection account," including the amount and whether or not it was paid. Even if you pay the amount in full, the entry is not automatically removed from your report, although it should be updated as "paid."

You should also know that if you get collectors to agree to accept less than the total amount of debt, the amount they forgave may still show up on your report as a bad debt. However, you can try to negotiate what they will report when you're negotiating the terms of a payment agreement. (Again, get it in writing.)

Regardless of what gets noted on your report, the fact that you had an account in collection may show up on your credit report for seven years.