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What should you do if you receive a debt collection letter?

Many people, on receiving a debt collection letter, either go into a state of panic and put it to one side until they can face it, or discard it altogether as something they don’t want to deal with. Here are four steps to deal with a debt collection letter in a constructive way.

Step 1 – Get over the initial shock and treat it as a normal letter.

Both of these actions can create costly delays or worse if the letter is not dealt with promptly. So the first step is to ignore your emotions around receiving it and treat it as you would any other official correspondence. Read it through carefully to ensure that you are liable for the debt and make a note of the sender.

Depending on the kind of debt, the business or individual to whom you owe the money may have employed someone else to write to you. This could be a debt collection agency, or a legal firm, most likely a solicitor. In extreme cases, the letter may be from a county court, or bailiff’s office – if the debt has already reached that stage.

Step 2 – Treat this as a business transaction

Once you have established that you are liable for the debt in question and know who you are going to be dealing with, you need to map out a course of action as you would in any business transaction. The reason being that from the perspective of whoever it is who has written to you, this is part of their day to day business and they want your part in their job to be settled as quickly as possible.

With that in mind, you need to decide what you are able to do to pay off the debt and this needs to be both practical and realistic. If you do not believe you are liable for the amount written in the letter, we will be looking at the best way to deal with this further down. But for now, let’s assume you agree that you do owe the money and want to pay it back as soon as you possibly can.

If the amount owed is able to be repaid without causing you financial hardship, simply contact the person who wrote to you and agree on a way to pay it. Once that is done, make a note of any references and confirmation emails and also get a record of the transaction via your bank as proof that it has been paid.

Should you not be in a position to pay it, you need to find a way to either delay its repayment or work out a payment plan you can afford. If the letter to you was written by a third party, this may not be as straightforward as it sounds as they have been employed to recover the full amount and that is what they have set out to do. With that in mind, keep all your correspondence in written letter form. This gives you a clear record and avoids intimidating tactics that may be used over the phone.

If you are comfortable initiating a repayment plan yourself, write to them offering what you can afford to pay and when. This should be backed up with a realistic breakdown of your current financial status in terms of income and expenditure. Provided you have given a true account of your circumstances, you may find the party concerned agree to your offer and then all you need do is make sure you stick to that agreement.

Step 3 (optional) – How to deal with debts you cannot pay

There will be times for some of you reading this when you are in such dire straights that any kind of repayment is impossible. At this point, you may find it beneficial to bring in an authorised third party to help your case. Some may simply offer you advice and help you with your financial statement. Others may go further and take your case over to negotiate repayments based on your circumstances.

Here are two of the most recognised debt advice centres where you can ask for help:

Citizens Advice Bureau

National Debt Line

But there is a more complete list on this page at the Growing Power site. Do be cautious of companies who offer you debt management schemes. Some are fine, but there are others who charge fees to take your situation on-board and that obviously simply adds to your problems. As a rule, avoid dealing with anyone who asks you to pay for their help. The two organisations listed above are completely free of charge and are run by experts with a lot of experience in these matters.

Step 4 (optional) – What if you do not acknowledge the debt

If you do not recognise the debt as yours, or dispute the amount owed, you should write and ask for the debt to be verified. Request a copy of the original credit or loan agreement and an account of all previous transactions that relate to it.

Make sure you file a copy of your letter away somewhere safe for future reference, as no further recovery action should be taken until it has been proved that the debt itself is indeed yours.

A final word

All in all, debt is something that needs to be dealt with but should not ruin your life. Take the steps outlined here and you can resolve yours with a minimum of worry.