Q: I just received a letter from a collection agency about an old doctor’s account (about $400). I had been out of a job for 18 months. Should I call them and try to arrange monthly payments or just send any amount that I can afford on a monthly basis?
Tesa, Los Angeles, CA
A: It’s great that you want to settle this debt now that, I hope, you are in better financial shape.
But, it’s important you take the right steps to begin paying this debt off and make sure it doesn’t haunt you in the future.
So yes, you should contact the collection agency. Ask them to provide
you with proof of the debt amount. According to the Federal Trade
Commission, by law (under the Fair Debt Collection Practices Act), a
debt collector has to send you a written “validation notice” telling you
how much money you owe within five days after they first contact you.
This notice also must include the name of the creditor to whom you owe
the money, and how to proceed if you don’t think you owe the money. [You
really should read up on your rights as a debtor. Visit the Federal
Trade Commission's site, and click on the link that says "In Debt?"]
Once you’ve confirmed this is your debt, then make an offer on how
much you can afford to pay each month. But, be realistic. Don’t promise
to pay an amount you truly can’t afford. You might also see if the
collection agency will accept a reduced lump-sum payment to satisfy the
debt. See if they will accept 50 cents on the dollar. Often creditors
will accept a cash offer now, rather than a promise to make monthly
payments later. However, if don’t have the upfront cash, go ahead and
arrange for an affordable monthly payment.
Most importantly, get everything in writing. Everything! Ask for a
letter that indicates when you have paid the balance in full. Keep
records of all your payments (canceled checks, bank statements, etc.).
You will need to keep these records forever, because often, debt is sold
and resold. You may find you have paid off this debt, but years later,
another debt collector says you still owe some money.