Do I Have to Pay the Collection Agency That Keeps Calling Me?
You may be familiar with this scenario: You’re just sitting down to a nice dinner with your family when the home phone starts ringing. Or your cellphone text messaging tone startles you. It’s that collection agency, hassling you again about that missed payment from the previous month. Early in the morning, at dinner, late at night and even on a Sunday – those collection agents don’t stop! The stress of dealing with them can prove overwhelming.
Paying our debts is important but when times are tough it’s not always possible. Unfortunately, the consequences of not paying our debts are real. They impact our credit rating and this can affect us for a long period of time. Because, if we damage that credit score, it could become very difficult for us to get a loan or a new credit card temporarily. It may even become more difficult to rent a home, finance a vehicle or obtain car insurance for that vehicle once we get it.
Many of us have had to deal with calls or letters from a collection agency if we’ve slipped up a bit and missed some payments on a credit card or bank loan. Often, it’s a momentary lapse and we’re back to paying our debts on time. But sometimes our lives head in a direction we didn’t expect, and multiple payments are missed, leading to a collection agency call. Often, this agency will make veiled threats, demand immediate repayment and even promise legal action if we don’t pay. Worst of all, these calls are embarrassing for us, the collection agents can sometimes be confrontational or downright rude and the entire event can be most upsetting.
So, what’s the best way to deal with these collection agencies? Do we just pay them when they call or are there alternative solutions? There are many situations when paying a collection agency might not be the best solution. That’s because, once a debt is referred by the original creditor (the people we owe money to) to a collection agency, it will also be reported to the credit bureaus (primarily, TransUnion and Equifax in Canada). And that could mean damage to our credit rating.
Your credit report holds details on every loan (including credit cards and overdrafts) you’ve taken out in the last six years and a complete repayment history for any credit you hold. If you miss payments, these are recorded and will damage your credit score. Therefore, even if you pay the debt by paying the collection agent in full, this counts as a regular credit transaction and the damage will stay on your record for six years. Paying off that bill to the collection agency won’t help improve your credit score or erase the damage caused by missing payments in the first place.
So, what can we do when the collection agency comes calling? The alternative is to not pay the debt. But that decision could also potentially lead to legal action by your creditor. Creditors and collection agents can take you to court if you don’t pay your debts. If they can obtain a legal judgment (a ruling by a judge in court), they are then able to garnish your wages or freeze your bank account. These are obviously not situations you want to see happen.
While there are reasons why you may not want to pay your creditors once a debt goes to collections, it’s important to understand the alternatives before you decide how best to continue. And, of course, the consequences of not paying your debts.
If you’re receiving calls from collection agencies, you could:
- Pay the collection agency in full or through a negotiation
- Not pay them and risk being taken to court (very likely)
- Work with a credit counsellor on a debt management plan (100% repayment)
- File a consumer proposal to settle the amount owing (20%+ of debt via negotiations)
If you decide to work with a credit counsellor on a debt management plan, you will likely still have to pay the debt in full. You may, however, save some money in interest charges or be given a bit more time to pay off the debt. Working with a credit counsellor is reported on your credit report, but it only stays on your report for three years after it is completed (rather than the six years it stays on if you pay the collection agency).
A key difference between credit counselling and filing a consumer proposal with the help of a Licensed Insolvency Trustee is that, in most cases, when you file a Consumer Proposal you will only pay back a portion of what you owe your creditors; and, once your proposal is filed in court, there will be an immediate stop to all creditor legal action (and all further interest on your debts).
In a consumer proposal, you work with a Licensed Insolvency Trustee to prepare an offer to your creditors. Most consumer proposals are for less than the full amount owing (anywhere from 25% to 50% on average). If you file a consumer proposal, this is also noted on your credit report, but your debts will be noted as “included in a proposal,” rather than unpaid or sent to collections. This note stays on your credit report for three years after the proposal is complete. This means the sooner you pay down your proposal, the shorter it will remain noted (if you pay off your proposal in two years, the proposal will be noted on your credit report for five years, for example).
A lot of people also wonder about a third option: Negotiating directly with a collection agency to settle their debt. In some cases, you can negotiate directly with a collection agency. At times a collection agency may be willing to accept less than the full amount owing or may give you a bit more time to pay your debts (although the debt will remain on your credit report for the full six years). However, a more formal way of handling this type of negotiation is through a Licensed Insolvency Trustee and the Consumer Proposal process.
If you are having trouble paying your debts and unsure of where to turn to, we are here to help you. Our insolvency professionals can provide you with a free consultation at a time and date convenient for you. During the meeting they will review your financial situation, give you advice on all the options available to you and provide all the information you need to make an informed decision on how best to handle your financial pressures.
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