When I tell a client to stop paying credit cards, they look at me as though I’d suggested they jump into shark infested waters.
“But they’ll start calling me”, they wail.
“I’ll be sent to collection“.
In their mind, “collection” is a real place, with manacles dangling, barred windows, and water dripping down moldy dungeon walls.
Turns out that it’s not very likely you’ll deal with a debt collector, according to Lessons on debt collection, published in the San Jose Mercury News. The interviewee was a former president of the California Association of Collectors.
Debt collectors more reputation than fact
Truths about debt collection:
- Only 6 % of consumer debt is turned over for collection
- The rate of collection on those accounts is 13%, down from 17% two years ago
- One half of 1% of the people turned over to collection are sued
The weapons of a debt collector are mostly psychological: all a phone call can REALLY do is attempt to get you to write a check.
If you don’t pay them, the collector has to either continue psychological warfare, give up, or sue.
As the article pointed out, lawsuits on consumer debt are relatively rare.
Know what’s important to you
The scariest thing about debt collectors is that they get you looking at the wrong thing.
They want you laser focused on solving their problem with an unpaid bill.
Your focus has to be broader: what does the whole of your financial life look like?
Don’t let your priorities be distorted by collection calls. Be clear about paying the important bills first.
Don’t let a credit card collector on the phone convince you that it is more important to pay him than paying taxes or family support. Tax agencies and custodial parents can summon the power of the government to take your money if you ignore those debts.
My pitch to clients is to move beyond worrying about the debt collector and start looking for big picture remedies.
Look for a plan that improves the your balance sheet, not necessarily your credit score.
Because, you want to sleep at night and retire in comfort.
Image courtesy of Flickr.