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Getting Out of Debt

6 Things You Must Know About Unpaid Bills

If debt collectors hound you over a forgotten bill, here’s what to do.


1. Uh oh. You forgot.

It can happen to the best of us: A bill gets buried in a pile of papers and, before you know it, you’ve missed a payment. If you have a solid history of paying your bills on time, you’ll likely be given a longer leash than customers with a history of late payments, but you may still be subject to late fees or an increase in your interest rate. You will usually be contacted before the debt is turned over to a collection agency or debt collector. You cannot be reported to the credit bureaus, which will ding your credit score, until your payment is 30 days past due. An unpaid medical debt cannot be added to your credit report for 180 days to allow time for insurance payments to be applied.

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2. You may request forgiveness.

If you have a good history with the creditor, call and ask for the late fee to be waived, says credit expert John Ulzheimer. Some credit card issuers extend an olive branch for late payments as a cardholder benefit. For example, the Citi Simplicity card doesn’t charge late fees, and the Discover It card lets first-time offenders off the hook. But such flexibility ends when the debt has been reported to the credit bureaus; it will remain on your record for seven years from the date that the account went into default. A medical debt, however, must be removed from your credit report as soon as it has been paid.

3. If a debt collector calls.

Debt collectors typically charge the original creditor about 40% of what they collect as a fee, or they buy debts outright and keep everything they collect. Debt collectors are required to send a written validation notice within five days of contacting you. If you don’t think you owe the money, or you believe that there has been a mistake, you have 30 days from the time you receive the notice to dispute the debt. That buys you time. If it’s a company you’ve done business with, start by checking your own account transactions, or ask the company to check its files to see if there’s a record of a payment. “You may have forgotten that you cosigned for a credit card or for an apartment, but, most of the time, you really do owe the debt,” says Ulzheimer.


4. You have recourse.

The Fair Debt Collection Practices Act is designed to shield you from debt collectors’ most egregious tactics. For example, they may not contact you before 8 a.m. or after 9 p.m., and they may not use obscene language or threaten you with violence. If a collection agency violates the rules, you can report the problem to the Federal Trade Commission, the Consumer Financial Protection Bureau or your state attorney general’s office.

5. When it’s time to settle up.

Banks and credit card issuers will be looking to collect the debt in full, but they will usually work with you to schedule payments. If your debt has gone to a collection agency, always make a settlement offer rather than pay in full, says Ulzheimer. “Even if you pay them 20% of what they’re trying to collect, they’re still going to make a mint off of you.” Keep a record of the payments you make.

6. The tax man calleth?

The IRS is preparing to use private debt collectors to go after people who owe back taxes, according to the Association of Credit and Collection Professionals. Details will be announced soon.

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