How to get out of paying debt collectors

If you become significantly delinquent on a credit account, it's possible the debt may wind up in collections. This means your original lender has sent your account to a collection agency, which has in turn assigned one or more collectors to contact you repeatedly in an effort to see the debt paid.

An account in collections can stay on your credit history for a long time, damaging your credit scores in the process. A debt in collections is one of the most damaging types of credit accounts that can appear on your reports.

Occasionally, when a debt goes to collections you may be able to negotiate with the collector to accept a smaller amount than what you originally owed. An agent may decide it's worthwhile to accept partial payment now rather than go through a prolonged collection process. If you settle for a lesser amount, you and the collection agency can agree in writing that the debt will be accepted at a lower rate and be reported as "paid in full" or "paid as agreed." The account will still stay on your credit history, but it may have less of a negative impact over time.

However, while some collections agencies will accept your debt at a lesser amount, this option is never guaranteed. Often, a collection agency will push to collect the full balance on what you owe and you will still be responsible to pay off your debt in full.

Payment plans and partial payments

There are a few different methods of lowering your debt that may be acceptable to a collector:

• Partial repayment. When dealing with a collection agency, start your negotiations low. Start by offering cents on every dollar you owe, say around 20 to 25 cents, then 50 cents on every dollar, then 75. The debt collector may still demand to collect the full amount that you owe, but in some cases they may also be willing to take a slightly lower amount that you propose.
• A payment plan. Spend some time laying out your monthly budget. How much money do you think you'll be able to put toward a recurring debt payment? If you had difficulty making the payments under the terms of the original creditor, you may be able to negotiate a lower monthly amount with the collector.

Get everything in writing

Before fulfilling any payment agreement you negotiate with a debt collector, make sure you get the terms in writing. Then, after your debt is paid off, request a written confirmation that you have settled your debt. Occasionally, a paid debt can resurface with another agency calling to collect. Having documentation that you've already settled the debt can save you a lot of time and potential stress.

Additional accommodations for debt during Covid-19

If you're dealing with significant debt during the Coronavirus/Covid-19 pandemic, you may have a few additional options available for relief.

First, if you're able to anticipate that you'll be unable to keep up with your debt before you actually start missing payments, reach out to your lenders and creditors and let them know about your situation. Many credit card companies and other lenders are offering additional accommodations for borrowers experiencing hardship during the pandemic. This might include allowing you to temporarily halt or lower your minimum payments or pause the interest gathering on your account.

In order to receive these accommodations, it's vital that you reach out to your lender proactively, before you begin missing payments. Additional accommodations will not begin automatically.

Lenders are unable to offer accommodations for debt that's already past due. So, if you've already missed one or more debt payments, or have a debt that's in collections, be prepared to navigate the collection process as you would normally.

You can find more information on dealing with debt during the Covid-19 pandemic via the Consumer Finance Protection Bureau.

A debt collector is a person who collects overdue debts. This could be for themselves, or for a lender (such as a bank), service provider or debt collection agency.

Debt collection is legal. The people you owe money to (your creditors) have a right to get it back. But it's not okay to harass or bully you.

If you receive a notice about being taken to court, get free legal advice straight away. If you ignore it, you risk your goods being repossessed and sold.

What debt collectors can and can't do

What debt collectors can do

Debt collectors must respect your right to privacy. They can contact you to:

• ask for payment
• offer to settle or make a payment plan
• ask why you haven't met an agreed payment plan
• review a payment plan after an agreed period
• advise what will happen if you don't pay
• repossess goods you owe money on, as long as they've been through the correct process

There are restrictions on how and when debt collectors can contact you:

By phone

• Monday to Friday, 7:30am to 9pm. Weekends 9am to 9pm
• no more than 3 times a week, or up to 10 times a month
• not on national public holidays

Face to face

• only as a last option if you haven't responded to phone calls or other ways to contact you
• any day between 9am and 9pm

Email and social media

• only if they're reasonably sure you don't share your account and only you can see your messages

What debt collectors can't do

By law, debt collectors must not:

• trespass on your property
• use overbearing tactics or abusive language
• harass or contact you at unreasonable times or more than is needed
• mislead or deceive you
• take unfair advantage of you because of illness, disability, age, illiteracy, or lack of understanding of the law
• discuss your debt with someone else without your permission

These protections also apply to your family.

If a debt collector's behaviour is unacceptable

If a debt collector threatens you with violence or physical force, contact the police immediately.

If they're harassing or intimidating you, ask them in writing to stop it. The Financial Rights Legal Centre has a letter template you can use.

If the behaviour doesn't stop, contact the Australian Financial Complaints Authority (AFCA) to make a complaint and get free, independent dispute resolution.

How to deal with a debt collector

Be honest and cooperative

If a debt collector contacts you, it's your responsibility to:

• Be honest about your financial situation, including other debts.
• Reply in good time to calls or letters.
• Agree to a payment plan if you can afford it.
• Tell the debt collector if your contact details change.

Keep good records

Keep a record of all your communication with the debt collector. Include:

• date and time of contact
• the name of the debt collector and company they work for
• how they contacted you (in person, by phone, letter, email or text)
• who said what

If you're struggling to pay the debt

If you know you owe the debt but are struggling to pay it:

1. Work out what you can afford to pay

Use our budget planner to work out what you can afford to pay. Calculate your income and expenses to work out how much, if anything, is left over.

If you can't afford to pay anything, call the National Debt Helpline on 1800 007 007 for free, confidential advice about what to do. The helpline is open Monday to Friday, 9:30am to 4:30pm.

2. Propose a payment plan with the debt collector

Contact the debt collector, say you're in financial hardship and you want to work out a payment plan. They must consider your request.

They may ask for financial details to show how much you can afford to pay. Only offer an amount you will be able to stick to.

The debt collector may agree to:

• Let you pay back smaller amounts over a longer time.
• Close the debt if you pay part of the debt in a lump sum.
• Waive the debt, if you're on a low income, have no major assets, and your situation is unlikely to change.

Ask the debt collector to put the agreement in writing.

If they reject your request, put it in writing (if you haven't already). If they still won't agree, you can make a complaint.

3. Do your best to stick to the payment plan

If you have trouble paying, contact the debt collector immediately. Explain why you're struggling and discuss a new arrangement.

If you want to dispute the debt

You can dispute (disagree with) a debt if:

• It isn't yours.
• You don't owe all, or part of it.
• It's more than 6 years (3 years in the Northern Territory) since your last payment, and there's no court judgment against you.
• You have grounds not to pay (for example, a breach of your rights).

Contact the debt collector and tell them why you're disputing the debt.

If you're not sure about the debt or amount owed

If you think a debt isn't yours, or you disagree about the amount owing, ask for:

• a copy of the contract or agreement
• a statement showing:
• the amount and date of the debt
• how it was calculated
• payments made and amounts owing (for example, principal, interest, fees and charges)

If you're threatened with legal action

Ask the debt collector to delay legal action to give you time to get legal advice.

If you've already paid back the debt

If a debt collector contacts you about a debt you've already paid, explain that in writing. Include copies of records that prove it.

Where to get help if you need it

Talk to a financial counsellor

Financial counsellors offer free, independent and confidential help to people with money problems. They may also negotiate with creditors on your behalf.

Get free legal help

Community legal centres and Legal Aid agencies offer free legal advice and can help you with disputes and debt recovery through the courts.

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