Have you ever been called by a collector? It’s not a pleasant experience. I’ve only received one collection call, but it was terrifying. I was in my early 20’s, already had a decent amount of debt, a reasonably expensive mortgage, and had recently quit my job to pursue one of my hair-brained million dollar schemes. Oops. Anyway, I was 30+ days past due on my mortgage, so I received a call from the mortgage company.
Here’s a summary of the message that was left on my answering machine:
“Hi Mr. Tecmire, I noticed that you were 35 days past due on your mortgage. Do you know when you’re going to be able to make last month’s payment?”
Here’s what I heard:
“Hey kid…you’re dead! If you don’t pay your mortgage in the next 24 hours I’m coming over to your home, stomping on your petunias, and ripping your toes off one by one. Watch your back!”
Do you want to know the strangest part? I didn’t even have any petunias! That’s how I knew it must have been all in my head. The point is that getting a collection call can be scary. The embarrassment, the uncertainty, and the fact that you have to come up with money that you don’t currently have all contribute to unwise decisions.
I know because I’ve also been on the other end of the phone. I recently worked in the collection department of a small community bank in Northern Michigan. I spent over a year of my life talking to people who hadn’t made a payment in months – everyone from the teacher who just got laid off and needs a couple months to get back on her feet to the doctor with the lavish lifestyle and $200,000 in credit card debt. I’ve seen and heard it all. I’ve heard heartbreaking stories that made me want to weep, and I’ve heard professional liars spin yet another amusing story. The world is made up of all kinds. This article is meant to help the folks who are really trying to get by and have fallen on hard times.
Dealing with a collection call is really pretty simple if you know what to do. Here’s the scoop.
Disclaimer: Dealing with outsourced collection companies and credit card companies rather than a local bank can be a very different experience. They are the ones that tend to hound you relentlessly until you pay. Credit card companies are often the most annoying. Why is that? Because they have very little recourse against you – the credit card is unsecured. The lack of collateral means they don’t have nearly as much leverage as a bank that can foreclose on your home or repossess your car. The lack of leverage means that the credit card collectors will call you 10 times a day and essentially annoy you into paying.
I would never advise you to not pay your debts back. I fully believe that we should live up to our initial promises to pay back our loans, but if you’ve literally done everything and can’t find enough money to pay everyone, make sure you prioritize your loans properly. Those debts that are secured by something that can be taken away should be paid first.
What to do when you receive a call from the collection department . . .
1. Pick up the phone.
Very few people do this, and yet it’s the most important step in keeping your bank happy and your car in your driveway. In any relationship, communication is key, and this situation is no different. If the bank hasn’t heard from you in three months, you won’t answer your phone, won’t respond to letters or emails, and still haven’t made a payment, what do you think is going to happen? Don’t make it such an easy decision for the bank.
The purpose of 90% of collection calls is simply to remind you about a payment that’s due or find out when you’ll be able to make that payment. It doesn’t have to be scary. Even if you’re not sure when you can make your next payment, it’s best to make that clear, than to say nothing at all.
Ignoring the problem is the worst thing you can do. I can’t stress that enough.
2. Be honest.
It’s always a good idea to tell the truth. Let’s say the bank is asking you when you can make last month’s mortgage payment, and you promise that it will be made this Friday . . . follow through with your promise. Be careful not to “slip” and promise something you know in your gut you can’t follow through with.
3. Come up with a legitimate plan (and follow through).
Let’s say you tell the truth and mention that you won’t get paid until the 1st of next month. Also, you have to pay your heat bill and car payment out of that check, but you should have enough for one payment plus an additional $100. After that you should be able to apply a little extra each month to catch up. It might take a few months until you’re fully caught up, but it’s the best you can do at the moment.
While it may not be the perfect scenario, it’s at least honest and, as long as you follow through, the bank will continue to be lenient. Leniency and honesty go hand in hand when it comes to collection.
4. Call if the plan changes.
Again, communication is key. Enough said.
5. Analyze your finances.
If life has thrown you a curve ball, and your financial situation is not what it used to be, it’s time to frugalize your life a bit. In other words, where can you “find the fat” as I like to say to get back on track? We all have some fat on our budget that could be trimmed if necessary. Remember that the quicker you make the necessary adjustments, the quicker you’ll be out of this mess. Cut out the obvious luxuries, and then take a deeper look if that’s not enough. Our food budgets are often some of the most bloated. Maybe try that next.
The Bottom Line
How you respond to collection attempts is important. There’s a right way and a wrong way to do it.
Scenario #1 – You can’t make your car payment. You haven’t followed through with your promises in the past and are now completely ignoring your bank.
Scenario #2 – You can’t make your car payment. You’ve been honest about your situation and have proven that you’re really trying to catch up.
In Scenario #1 your car will may very well be picked up within 45 days. However, with Scenario #2 it would probably take at least 90 days before the bank finally decides to take action – even if you never make a payment during that time.
Remember . . . a collection call doesn’t have to be scary. It’s really up to you.
Have you had to deal with collection calls? How did it go, and would you have done anything differently? Leave a comment below!
This is a guest post from Chris Tecmire. Chris started SimpleFamilyFinance.