The basics of debt collection

Collectors mainly chase people who owe money from them through late payment letters. If you have been receiving quite a number of them lately, then banks or lenders may assume you are ignoring them deliberately.

You may not ignore the fact that your payables are accumulating even though you are cash-strapped or going through some tough time that is indirectly related to finances. In any case, failing to prepare for the consequences of late payments is preparing to fail, to put a twist into a popular line.

Spare just a few hours to deal with debt and payment letters. Prioritise high-risk debts, such as a mortgage or a rent payment, council tax, utilities such as gas and electricity, child maintenance, court fines, and auto loans.

These loans necessitate the seizure of an asset in case of a default. Your house or vehicle may be taken away by the lender, your possession by the court or council. In the case of utilities, providers may cut your service after a certain period of non-payment.

Deal also with non-priority debts such as credit cards, a payday loan, bank overdrafts, personal loans, or money borrowed from family or friends. This type of credit does not require a collateral from the borrower, but not settling them will affect your credit score.

So how do you handle both categories of debt?

See to it that you have a way to track where your funds are going for an entire month. List your salary and outgoings, including high-priority repayments. Adding food and entertainment expenses to the equation, will you still have enough for that specific period? Then use the money to pay up non-priority debts in smaller portions. Later in the article you will be given advice on how this can be done.

Once you have a complete idea of a month’s worth of cash flow, it is time to deal with the letters. Sometimes you cannot do anything anymore to undo the effects of a late payment. You are left with a record in your credit history even after clearing the debts. What you can do, however, is to craft a letter of apology for what you have done. Enclose it with the cheque or hand it separately to a bank or nonbank official.

You can also use the letter as a starting point in your conversation with your lender or service provider if you request an amendment in your debt or loan repayment terms. For example, you have calculated your monthly outgoings and found out that you can only pay a certain amount, not the sum, of your current credit card balance. You can speak to a representative from the credit card company, explain your situation, and ask them to lower your monthly due to something you can afford. Make sure, however, that you are diligent in paying the agreed amount once the company approves it.

A letter of apology may also work with a relative or a friend, but speaking directly to the person is more appropriate in this situation. Just like Becky Bloomwood, in Confessions of a Shopaholic, people can be clever in avoiding their liabilities by dodging possible encounters with company representatives.

This tactic may be hard to do with family and friends as these are people you are likely to see on a regular basis.Eespecially if you thought of borrowing from them, this means that they are people within your circle of trust, and also trust you. It is better to face them and tell them the honest truth. You can explain your situation to them, apologise, and set a new, more reasonable date. There is no guarantee that they will always hear and understand you, but it’s still worth a try. They will most likely appreciate your honesty.

It is strategic to prepare yourself before appearing at their door on top of bringing a note of apology. This way, you will cover the main topics you want to discuss with them: apology, explanation, and game plan for repayment. Rein in your emotions, although you can also appeal to theirs. But keep to your talking points to prevent you from flying off the handle when the situation gets sticky or sensitive.

Seek help if you don’t think you come up with a good game plan for you to repay all your debts in a strategic manner. There are charities in the community that offer debt advice free of charge. They offer face-to-face interaction, over-the-phone and online options. You can find these charities within your local area or in neighbouring communities. Consulting an external party will give you a good perspective of your situation.

Remember that you can take control of your life, even in the middle of a difficult financial situation. Your creditors are allowed to send late repayment letters as a reminder, but be wary of their behaviour. Fair collection is still expected from them, so they must not act illegally.

Responsible lender treats clients fairly, according to the Consumer Credit sourcebook of the Financial Conduct Authority (FCA). They should give you a reasonable amount of time to settle your debt while they maintain a good reason for chasing you.

Some red flags you should watch out for are:

  • Receiving letters that read like court claims.
  • Being told to reach the collecting party via a special hotline.
  • Not specifying the balance.
  • Throwing you legalese that is not helpful at all in clearing out your credit.

There are other deceptive methods that debt collectors can use, such as making you believe that you have a legal liability for collection costs. Know that you are protected by the regulation from visits in your workplace or the hospital, and from forced entry to your home after requesting collectors not to.

These unfair practices are condemned by the FCA. In case you experience harassment—which may also be in physical or psychological form—from any debt collection agency, learning about what constitutes harassment can help you protect yourself.

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