Debt collection calls are spiking nationwide. Here's what to know about your rights.
More and more Pennsylvanians are swiping credit cards and finding themselves in too much debt for comfort. But when the debt collection companies start calling, most people don't know what to do.
If you find yourself trying to get out of debt, it's possible your phone will soon light up nonstop. Debt collection calls recently spiked 200% nationwide. If this happens, you're far from alone.
Debt consolidation versus debt settlement
"I was a little worried because of some of my credit cards, the limits were getting a bit high," said James Reinhardt. "So, I thought I would be proactive about it and try to consolidate them, and I contacted what I believed to be a consolidation company."
He actually signed up with a debt settlement company. And his phone blew up with calls from debt collectors.
"As much as I blocked it, it felt like cockroaches or something, like no matter what you do, they're still kind of there," he said.
Thomas Nitzsche with Money Management International says it's a simple mix-up. He says a for-profit debt settlement company stops paying your creditors and allows them all to go into collections. That's how they'll later try to get the debt negotiated lower.
"If your accounts are already in collections, then fine, there's no harm in trying to settle on them, other than you'll get a 1099 at the end of the year for any amount of debt that's forgiven, so keep that in mind at tax time," Nitzsche said. "And for-profit companies do charge significant fees, usually 15-25% of however much debt you've enrolled with them."
Should you use a debt settlement company?
Nitzsche says for people like Reinhardt, he didn't need to go that route.
"But you need to understand that if your accounts are current, you likely don't want to go that route, because it's going to cause all your accounts to go into collections, into default, there's going to be a lot of credit damage," he said. "You could easily see your credit score slip 100 points or more. So, you want to understand what type of service you're getting into, and the first question really is, will my accounts be paid every month, and will they remain current? Bottom line, that's what you want to know."
Reinhardt quickly learned that the debt settlement company stopped his payments, hence the calls. He's one of the more than 13,000 Pennsylvanians that filed complaints about these debt collection calls.
And new data out from the Federal Trade Commission shows a nearly 200% spike nationwide in debt collection call complaints — a total of more than 400,000 last year alone.
Reinhardt blocked the numbers and pursued Money Management International's help.
"I think it can be very easy to feel overwhelmed or feel embarrassed, but there is help out there," Reinhardt said. "I just say do your homework, see who can help you out the best."
Consumers have rights when dealing with debt collectors
Nitzsche wants consumers to know their rights when dealing with debt collectors.
"They can't call you in the middle of the night, they can't tell other people about your debt if that person is not also listed on the account," Nitzsche said. "So make sure you do understand your rights. They have to abide by what's called the Fair Debt Collection Practices Act. So it's a good idea to review that, make sure you understand your rights, and if they're being violated, make sure you take action."
Another great thing to know is he says you'll need to act quickly because you only have about three months from the time the account falls past due until it gets sent to a collection agency. Once it's sent to the collection agency, the credit damage is done and there's no rehabilitating that account.
Thankfully for Reinhardt, he's on a payment plan and Money Management International negotiated a lower interest rate on his debt, continuing to make timely payments on his behalf.