Hearing from a debt collector can be a terrifying experience — particularly if you didn't even know you had an overdue amount. Debt collectors may make it seem like you have to pay right upfront or over the phone to get your owing amount sorted. But don't worry, you have rights — so here we'll cover what you can do to correct a debt collection issue and how to set yourself back on track to positive credit.
How did the debt collection agency find me?
Debt collectors are authorised to use public records and other resources to contact you on behalf of their clients. It may seem unpleasant, but your provider will keep trying to get you through whatever system they have on file — so if you forgot to update your address and they send you a missed payment notice, they'll keep sending them to the same address.
That seems unfair.
Consider the situation from your credit provider's view — they will have hundreds, maybe thousands of clients and loans on the go at once. Trying to find even a percentage of those who have missed their payments is a full-time job, which is why they outsource the job to debt collectors.
Why do I have to pay late fees?
Several fees are usually incurred when your overdue amount goes to a debt collector. These are added on for the missed payment and for transferring the payable amount to someone else. All of these factors cost your provider, which is why they pass the cost on to you.
Any added fees should be outlined in your original agreement with your creditor or provider. So if you're unsure about anything you see, you can always ask to see the real deal first to make sure that your new repayment is by what you signed. This will be in a section that talks about late or non-repayments. Your provider also needs to have contacted you about the non-payment first.
The debt collection agency cannot tell you that non-repayment will lead to court action — although they can take you to court. Other things to look out for are the late fees — they have to be 'reasonable'. Unfortunately, what's reasonable is anything up to 30% commission (the fee amount you owe) on the original loan, plus GST.
If you signed over something as security (if you can't repay), that item could legally be sold on the provider's behalf to make up for the money you owe.
Again, you have rights here — you have to be informed first, as debt collectors have to be able to show that they've tried to contact you before they arrive repossess anything you have declared as security. Fair treatment has to be given to you and your property, and nothing can be taken outside of the original agreement unless you put it up for voluntary repossession.
Once repossession has taken place, your account is frozen, which means no more fees should be applied whilst your item is sold if any leftover debt stands, though you'll be expected to pay that too.
How do I handle my repayments?
Debt collectors have to be respectful of your space — ringing your place of work to discuss your loan or contacting you outside of regular work hours is a big no.
We suggest talking to your debt collectors as soon as possible because doing so quickly means you can avoid adding anything to your overdue amount. By replying to their email or call, you should be able to set up a new payment agreement based on what you can afford. This will include the original late payment fees (although you could ask to see if those can be waived for showing intent to pay).
Setting up this agreement is between you and your debtor unless they agree to shift the debt back to your provider. So work with them on a reasonable payment strategy that you can afford — after all, they want to see that you pay the loan, so it's in their best interests to work with you.
You don't have to pay immediately over the phone, though, or give your bank details. You can sort out the payment the same way as a provider and make the payments into their account. Or set up a direct debit with your bank.
One important to note.
Occasionally, scams will pose as debt collectors, who will try to convince you that you owe them money. If you're ever unsure about someone, get in contact with your provider to ask them who they use as a debt collection agency. If the details on file match, it likely isn't a scam.
You have rights when it comes to debt collection, including seeing your original agreement first and deciding on a payment method. The key takeaway here is to respond to them as soon as you can and, if you're sure the fees are reasonable, sort out a repayment schedule that works for you.