Being contacted by a collection agency about an old debt may catch you off guard, even if you know you owe the debt. Before you take the offer to settle the debt with the collection agency, make sure the collection agency has the authority to settle the debt on behalf of the original creditor; otherwise your money could be wasted.
Collection Agencies
A collection agency is not the original creditor to whom you owe money, but rather a third party that attempts to collect the debt. Sometimes the debt is still owned by the original creditor, at least for a period, before the creditor writes off the debt. During the time the original creditor still owns the debt, it may use a collection agency's services to recover the money. Sometimes collection agencies have actually purchased the debt from the original creditor, meaning the collection agency owns the debt at that point.
Validation Notice
When a collection agency first contacts you about a debt, it has five days to send to you a validation notice in the mail, according to the Federal Trade Commission. A legal validation notice must contain certain information, including the amount owed, the name of the original creditor and information on how to proceed with contesting the debt if you believe that you do not owe any money. Without a validation notice, you do not have any proof that the collection agency has the authority to settle the debt, making sending money to the collection agency a risky move.
Settling or Reporting
If you do not think you owe the debt the collection agency is trying to collect, you do not need to settle or pay any amount to the collection agency. If you do believe you owe the debt and have received a validation notice from the collection agency, you can negotiate with the collection agency on the amount you can pay to settle the old debt. If the collection agency does not send a validation notice, or if it threatens you with jail time for not settling or otherwise act abusively, contact the FTC through the "Complaints" link on the FTC home page.
Contact an Attorney
You may retain an attorney to deal with debt settlements, especially if you are nervous about negotiating settlements on your own. If you have retained an attorney, collection agencies must contact your attorney and not you about settling any debts.
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