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What to do when you receive a debt collection letter

Receiving a debt collection letter can be quite unnerving to say the least. However, there is no need to panic. Such a letter is a normal step in the debt collection process.

Here are some steps you can take to make sure you’re in control of the situation.

Confirm the legitimacy of the debt

Before you acknowledge the debt, it’s a good idea to request validation in writing. You can ask for documents such as a credit or loan agreement or an account statement that itemises all credits and payments to the account. Even if you know you owe the debt, it is valuable to request this information. This is because under the Financial Conduct Authority’s (FCA) guidelines, it is up to the debt collector to prove that you are the right person in regard to the debt and that the amount indicated is correct under the agreement. 

If a debt appears to be incorrect (either you don’t owe the debt or the indicated amount is not right), you should immediately dispute it in writing. A debt collector cannot continue making demands for payment of a debt until it has completely invalidated any disputes against this debt.

Don’t rush to pay

Unfortunately, debt collectors can be quite intimidating. They might use threatening language in the collection letter, prompting you to start making payments immediately. However, until you have established the legitimacy of the debt and agreed payment arrangements that you are comfortable with, you are under no obligation to make any payment.

Make a reasonable payment plan

If the debt collector has verified the debt and provided you with all information you have requested, it’s time to think about payment options. If possible, the quickest and easiest solution could be to pay the debt in whole and save yourself from the headaches and dramas that come with debt collectors. 

The truth is that many debt collectors who have purchased your debt from a creditor or have been contracted to collect the debt are willing to negotiate given that they only make a profit if you pay. In fact, if you can propose to pay a lump sum immediately, the debt collector might be willing to accept an amount less than the one actually owed.

If you cannot pay back the debt as a lump sum, you can try to reach a different payment agreement with the debt collector, such as paying off the debt in weekly or monthly instalments.

Remember your legal rights

Even if you owe the debt, you have rights regarding how debt collectors should collect it. According to the FCA’s Consumer Credit sourcebook, debt collectors should, for example, not mistreat, harass or abuse when contacting you regarding debts, and they should not call you at unreasonable times or at your place of work. If the debt collector does anything that violates these rights, you can make a complaint through the Financial Ombudsman or even hire a lawyer to sue them for violation of your rights, so keep this in mind.

Create a correspondence file

This is a crucial step which many unfortunately ignore. After receiving a debt collection letter, you should seriously consider creating a correspondence file in which to keep documents, records and notes of all contact with the debt collector. The collection letter can be the first item in your correspondence file, followed by your letter requesting validation of the debt. Try to keep note of everything that is said or agreed in all correspondences and who says it. You can also put receipts for any payments in this file.

The correspondence file can come in handy if the debt collector acts in any way that violates the FCA’s debt collection guidelines. 

Key takeaway

When you receive a debt collection letter, you shouldn’t panic as there are steps you can take to help you get on top of things. However, remember that a legitimate debt will not simply go away and you shouldn’t just ignore the debt collection letter. If you come up with a practical repayment plan and then stick to it, you will find that it will be good not only for your peace of mind but also for your credit report!

Educating yourself on personal finance and understanding the financial products that you use everyday can make the difference between comfortable finances and constant stress. At MyWalletHero, we aim to make learning about personal finance rewarding and fun.

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