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How Much Should You Spend on Christmas? 13 Spending Statistics

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Christmas time is a joyful season for many, but unless you’re intentional with your finances, it can quickly become a source of stress.

When determining how much you should spend this year, it makes sense to consider how much others typically spend. For an average baseline of how much you should shell out this year, many financial experts suggest calculating one percent of your annual income to arrive at a figure that won’t break the bank.

With each passing year, the holiday season’s focus on consumption seems to loom larger than the last. Grandiose store displays and nonstop commercials pressure us to spend far more than we can afford—leaving many Americans with the unfortunate burden of credit card debt come the new year.

According to NerdWallet’s 2019 Holiday Shopping Report, 71 percent of shoppers planned to use a credit card to fund their holiday spending. While the use of credit cards during the holidays might not come as a shock, the debt many are left with long after the holiday season ends is more concerning: Roughly 48 million Americans were still paying off credit card debt from their 2018 holiday expenditures in 2019, according to the same report.

If you’d rather avoid paying off this year’s holiday well into next year, all you need is a bit of preparation and a plan of action to keep your spending in check.

Alt text: Average Holiday Debt Per Year (2015–2019): 2015: $986. 2016: $1,003. 2017: $1,054. 2018: $1,230. 2019: $1,325. Source: Magnify Money

How to Determine How Much to Spend on Christmas This Year

When figuring out how much you should shell out for your Christmas spending, it can be helpful to look at some national averages as a baseline. According to a Gallup study, Americans planned on spending an average of $942 on gifts in 2019.

Compare this to the average household income of around $69,000 as reported by the U.S. Census Bureau, and you get an idea of what a reasonable amount might be for you. If you make $34,500—half of the national average—a general guideline could be a gift budget of around $471, or half of the average spent on gifts. Financial experts recommend spending around one percent of your take-home pay on gifts.

To be sure you can afford your holiday spending, creating a budget ahead of time is your best bet. It doesn’t have to be elaborate, but having a clear picture of your finances up front can save you stress down the line.

Start by listing out all your monthly fixed expenses—the expenses you know you must pay each month. This includes food, home utilities, gas and other monthly expenses like cable and phone bills. Subtract your monthly expenses from your monthly income and see how much you have left. This is your disposable income.

From there, decide how much of your disposable income you can put towards your Christmas spending. If you can put all of it in, that’s great! If you’re worried it’s not enough, consider where in your current budget you can reign in your spending in order to bulk up your holiday budget.

Holiday Spending Statistics

  • 71 percent of shoppers planned to use a credit card to fund their holiday spending. (Source: NerdWallet)
  • Holiday retail sales throughout the last two months of 2019 grew to $730.2 billion. (Source: National Retail Federation)
  • Non-store holiday sales grew by 14.6 percent in 2019. (Source: National Retail Federation)
  • U.S. holiday spending sales reached over $1 trillion in 2019. (Source: eMarketer)
  • Roughly 48 million Americans were still paying off credit card debt from their 2018 holiday expenditures in 2019. (Source: NerdWallet)
  • The average household income for Americans is around $69,000. (Source: U.S. Census Bureau)
  • Individual Americans planned to spend an average of $942 on gifts in 2019. (Source: Gallup)
  • Holiday retail sales came in at about a whopping $1.007 trillion dollars in 2019, a 4.5 percent increase from 2018. (Source: eMarketer)
  • Holiday travelers spent an average of 14 percent more per trip for 2019 than in years past. (Source: Squaremouth)
  • Holiday Trip cost averaged out to $4,056 per trip in 2019 for those traveling within the U.S. (Source: Squaremouth)
  • Spending on experiences, such as dining in restaurants, accounted for over a quarter of holiday spending in 2019. (Source: Deloitte)
  • 59 percent of all food and beverage spending took place in restaurants. (Source: Deloitte)

Tips to Stay on Budget and Out of Debt This Holiday Season

In order to stay on budget for the holidays, a plan is essential. The following tips will ensure you stay on track and out of credit card debt.

Before You Shop, Make a List

Before you spend a dime, make a list of everyone you intend to buy a gift for. That might not only be your immediate and extended family, but also friends, neighbors, kids’ teachers or coworkers. Then write the dollar limit for how much you can spend on each person.

Use this printable to keep track of every person on your gift list and how much you’ve spent. The two money-related columns—one for your planned budget for each person and one for how much you actually spend—can help you keep track of any leftover funds you might have. If you end up under-budget for one person, note it in your tracker and allocate the money elsewhere.

Holiday gift tracker printable

Don’t Forget Non-Gift Items: Gift Wrap, Ingredients, Decorations, etc.

Gifts aren’t the only thing you should budget for—many other festive costs will likely come up. Buying a Christmas tree, lights and a tree stand can get pricey fast, and that’s just one example. Home decorations, outdoor Christmas lights, gift wrap and holiday meal ingredients should all be accounted for in your holiday budget.

Most people don’t think about their homemade holiday meals when it comes to their budget—considering it’s usually just an extended grocery list, it’s easy to forget how quickly all those extra ingredients add up throughout the season. Instead of letting it sneak up on you, use our menu planning printable to keep up with holiday meal planning and stay on budget. Feel free to print one off per meal or event you need to plan for.

Holiday meal planner printable

Don’t Spend According to Sales: Stick to Your List

There are countless temptations vying for your attention and your wallet during this time of year. Stumbling upon what feels like a once-in-a-lifetime deal inevitably happens more often throughout the holidays, and unless you’re intentional about what you need and can afford, those impulse-spending moments can take a toll on your finances. If you make a commitment to only buy the things on your list, you’ll know exactly where your money is going and won’t be tempted to stray from your plan.

For a bigpicture look at all your holiday spending, use this printable to record your budget for each of your spending categories and keep up with how much you’ve actually spent.

Holiday budget tracker printable

While managing your finances responsibly during the holidays is tough, the process is fairly simple. It all comes down to planning ahead and being intentional about what you can afford.

When you’re proactive about making a budget, you avoid having excessive use of your credit card over the holidays. This can prevent you from accumulating a high credit utilization ratio, which is the result of borrowing too much money from your credit lines.

If you’re unsure of how your credit utilization score is impacting your overall credit, the credit repair counselors at Lexington Law can help you get clear on where you stand before the holiday season is underway.

Give yourself the gift of a stress-free season by protecting yourself from bad credit and staying debt free. Making a plan for your holiday finances ahead of time might be the most rewarding gift you receive all year.


Reviewed by Kenton Arbon, an Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Kenton Arbon is an Associate Attorney in the Arizona office. Mr. Arbon was born in Bakersfield, California, and grew up in the Northwest. He earned his B.A. in Business Administration, Human Resources Management, while working as an Oregon State Trooper. His interest in the law lead him to relocate to Arizona, attend law school, and graduate from Arizona State College of Law in 2017. Since graduating from law school, Mr. Arbon has worked in multiple compliance domains including anti-money laundering, Medicare Part D, contracts, and debt negotiation. Mr. Arbon is licensed to practice law in Arizona. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Credit Cards

Do debt consolidation loans hurt your credit?

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

When done correctly, debt consolidation loans usually do not hurt your credit long-term. In fact, there’s a good chance that they will ultimately improve your credit. However, debt consolidation can initially knock your score down a bit, which is why it’s important to do your due diligence before pursuing this strategy.

Debt consolidation is a way to combine multiple debts into a single loan. This not only reduces the interest you owe, but it also helps you organize your debt, making payments more manageable.

Debt consolidation can have positive and negative effects on your credit score. Here are a few areas it may negatively impact:

  • Credit applications: Applying for a personal loan or a balance transfer card requires that a hard inquiry be performed on your credit. This will likely lower your score a bit initially as you get the consolidation process started.
  • Average age of credit: The ages of your credit accounts matter, with older accounts garnering better credit scores. When you open a new account, it lowers your average credit age, which may initially negatively impact your score.

On the other hand, the following categories tend to be positively impacted by debt consolidation:

  • Credit utilization: A new debt consolidation account will usually increase the amount of available credit you have. As long as you don’t begin spending significantly more after opening the new account, you’ll be using less of your available credit, which will benefit your score.
  • Payment history: If you consistently pay off your new loan on time, your credit will likely be positively impacted.

Effects on credit score depend on the debt consolidation method

Each debt consolidation method comes with its own benefits and drawbacks. It’s important to acquaint yourself with the potential impacts of each method to make sure that consolidating debt results in a net gain for your credit health.

Balance transfer

A balance transfer is the process of transferring debt to a single credit card with a lower interest rate, allowing you to pay off your debts for less. Many balance transfer cards offer zero-percent APR during an introductory period, providing a window to pay off debt interest-free.

Despite the benefits offered, a balance transfer card could damage your credit score. First, applying for a new credit card may warrant a hard inquiry, which can bump your score down a bit. Second, your credit score is partially determined by credit utilization, and transferring significant amounts of money to a card and then paying it off involves high credit utilization on that card. This will likely harm your score.

If you decide to pursue a balance transfer card to pay off debt, be sure to investigate the card’s APR following the introductory period. Your interest rate may take you by surprise and skyrocket if you don’t do your due diligence.

The average length of a 0% APR introductory period is around 12 months for balance transfers. Source: WalletHub

Personal loan

Another popular debt consolidation method is taking out a personal line of credit. These loans are available at any time and can be used to quickly pay off debt.

If used correctly, personal loans can improve your credit score by diversifying your credit mix, especially if you’ve only had credit cards up until this point. Paying off debt with a loan rather than with credit can also reduce your credit utilization, which may boost your score.

That said, it’s important to remember that this process involves taking out a loan that must be paid back on time. You may also want to reconsider this option if your present score doesn’t allow you to take out a personal loan without being charged a high interest rate.

Borrowing from a 401(k)

If you have a 401(k) retirement account, you can borrow up to half of this balance to pay off debt. While it must be paid back within five years to avoid penalties, borrowing from a 401(k) does not have any adverse effects on your credit score. Moreover, the money you borrow doesn’t accumulate interest since 401(k) funds aren’t borrowed from a lender.

However, it’s important to remember what a 401(k) is meant for—retirement. Taking out funds for short-term debt payments can significantly detract from your retirement savings. You may also have to deal with tax repercussions when taking this course of action.

Nearly one-third of Americans with retirement accounts have borrowed from those accounts in the form of a loan. Source: SHRM

Home equity loan or line of credit

Home equity loans or lines of credit are perhaps the riskiest forms of debt consolidation, but they also offer some significant benefits. Essentially, lenders will offer you a loan and use your home as collateral. This means that if you fail to pay off the loan within the amount of time agreed upon, you could lose your home.

You must have excellent credit to take out a home equity loan or line of credit. When you apply, you will be hit with a credit check, which could initially lower your score a bit. While the impact on your score will likely be relatively insignificant, these loans can also accumulate very high interest, so it’s important to use discretion before taking one out to pay off debt.

Other options to consider

If debt consolidation doesn’t feel right for you, that’s okay. There are other debt relief options that could help restore your peace of mind regarding your financial situation.

Debt management program

Debt management services can help by counseling you regarding your options when you’re struggling with debt. A debt management program will likely involve a counselor negotiating lower interest with creditors and potentially closing credit cards.

While visiting a counselor at a debt management agency doesn’t harm your credit score at all, entering into a debt management program that reduces how much you have to pay does usually negatively impact your score. Your credit report will likely reflect the debt management program in effect until you are no longer using it.

Debt settlement or bankruptcy

Debt settlement is the process of negotiating with creditors to pay significantly less money than you owe to have your debt forgiven. Bankruptcy is a legal process that helps people organize and sometimes eliminate their debt. Bankruptcy, however, is a more long-term option than the other ones we’ve mentioned.

These two options should be a last resort when struggling to pay off debt, as they can have a significantly adverse effect on your credit score. Both debt settlement and bankruptcy will remain on your credit report for upwards of seven years, and sometimes up to ten years, negatively impacting your ability to open new accounts or apply for a loan. However, if you need to take care of massive debt now and you take wise financial steps in the future, these processes could end up ultimately being the right solution for you.

Should I consolidate my debt?

Before pursuing debt consolidation, it’s important to take a comprehensive look at the reasons you’re interested in consolidating debt and your plans for the foreseeable future.

Do you have a high interest rate?

If the interest on the debt you owe is 20 percent or more, you’ll likely save money by consolidating debt. However, certain balance transfer options charge fees that may counteract the benefits of debt consolidation. Do your research ahead of time to figure out which option saves you more money.

Are you missing payments?

Keeping track of all of your accounts can be stressful. If remembering to pay your bills has been a struggle and you’ve found yourself repeatedly missing payments, debt consolidation may help. Consolidating your debt could simplify your financial life by allowing you to take care of all payments at once. This will also benefit your credit in the long run, since missed and late payments can be detrimental to your score.

Do you need excellent credit in the short term?

If you’re planning to take out a loan or a mortgage anytime soon, you may feel the need to safeguard your credit score at all costs. Since many debt consolidation methods will put a temporary dent in your score, it may be wise to hold off until after you’ve been approved by a lender.

Ultimately, whether you decide to pursue debt consolidation and which method you choose depends on the weight of your debts and what would benefit your credit most. If you’re still on the fence, it’s a good idea to consult a financial advisor before making any decisions that could have long-lasting consequences.

Whichever decision you make, remember to keep your credit health at the forefront of your mind, and to take the steps where needed to repair your credit to expand your financial opportunities.


Reviewed by Cynthia Thaxton, Chief Compliance Officer. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah, North Carolina and Virginia.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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How is credit card interest calculated?

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How is Credit Card Interest Calculated

If you’re like most people repairing their credit card debt, your credit card’s annual interest rate is a mystery to you. You might even avoid thinking about it or looking at it, because it’s such a large number. Interest rates can make it difficult to get out of debt quickly, because you’re working against a large percentage—as much as 16% or even 20% annual interest.

Credit card interest is calculated using a complicated formula that can be confusing to many people. So it often remains a puzzle to borrowers. But it’s important to understand the basics of credit card interest, because it will help you to repair your credit card debt quicker—and to be a smarter credit card user. Here’s how credit card interest works.

How Is Credit Card Interest Calculated?

credit card interest calculation

If you’ve watched your interest rate closely, you may have noticed that it has changed since you first opened your credit card. Many credit cards offer a low introductory interest rate that increases after the period is over. But even after that, your annual interest rate will often go up and down. That can be confusing, and even a bit unsettling.

Your interest rate changes

The first thing you should understand is that your credit card uses a variable interest rate. That means that the interest rate can change over time. A variable rate is tied to a base index—usually the U.S. prime rate. As the U.S. prime rate goes up or down, so will your credit card’s interest rate.

Right now, the U.S. prime rate is 4.25%. But your credit card’s interest rate is probably closer to 18.25%, or even more. That’s because credit card companies charge an additional amount above the U.S. prime rate—perhaps 14%, but it varies from card to card. So your total interest rate will be closer to 18.25%, annually. If the U.S. prime rate raises or lowers, your annual interest rate will also go up or down by the same amount.

The factors that influence the U.S. prime rate are reviewed every six weeks. The prime rate could stay the same for years, or it could change every six weeks. It all depends on current federal economic conditions and forecasts.

Your interest rate is annual

It’s also important to understand that your credit card’s interest rate is an annual rate. So if your annual rate is 18.25%, that amount is applied per year—not per month. But since you’re billed monthly, your interest is calculated each month, using an average daily balance method.

Calculating your interest rate

Here’s how the average daily balance works:

  1. Determine the daily periodic rate (DPR)—the interest rate you pay each day. DPR is your current interest rate (it varies, remember) divided by 365. So, 18.25 / 365 = 0.05%.
  2. Determine the average daily balance for the month. This is done by adding up the balance for each day of the billing period, then dividing that sum by the number of days (either 30 or 31 days—or 28 in February!). If you had a balance of $0.00 for 10 days, then $500.00 for 10 days, then $1000.00 for the last 10 days of the month, your average daily balance would be $500.00.
  3. Multiply the DPR by the number of days in the billing cycle, then multiply that total by the average daily balance. This is your interest for the month. So, a DPR of 0.05% * 30 days = 1.5%. 1.5% * $500.00 = $7.50.

That might not sound like much, but if you’re an average cardholder in the United States, you’re carrying a credit card debt of $16,000.00. That means you’re paying $2,880.00 per year in interest alone, in this scenario.

How Can I Avoid Paying So Much Interest?

When you’re working hard to repair your credit card debt, it can be frustrating to be fighting against a high interest rate. But there are ways you can reduce—or even eliminate—the amount of credit card interest you’re paying each month.

Pay more than the minimum balance due

Your credit card statement lists a minimum amount that you must pay each month. Your interest for the month is rolled into that minimum payment. But if you pay more than the minimum, every dollar above that minimum goes towards your principal balance. There’s no interest charged on it.

In other words, if your minimum payment is $500.00 and you pay $600.00, that extra $100.00 is applied to the amount you borrowed—it’s interest-free. And that benefits you in two ways:

  • You’re paying off debt without paying interest
  • You’re lowering the dollar amount of interest you’ll have to pay next month, because your average daily balance will be smaller.

Open a balance-transfer credit card

credit card interest

A balance-transfer card can be a very helpful way to repair your credit card debt. A transfer credit card has a very low introductory interest rate—often as low as 0%. The card lets you transfer your balance from other debt onto the new card. You can then make monthly payments on the transfer card to pay down your existing debt.

But the low interest rate is only valid for a limited time—usually six to 18 months—so you’ll need to pay off the debt before the introductory rate expires. You should also do your homework: some transfer cards charge a transfer fee. And some charge a penalty APR, which allows the credit company to charge you a high interest rate if you miss a payment.

Pay off Your Credit Card Debt Faster

Your credit card’s annual interest rate doesn’t have to be a confusing mystery, and you don’t need to know everything there is to know about interest rates. But when you understand the basics of variable interest rates and how they’re calculated, you can use that information to repair your credit card debt faster and easier. Paying more than the minimum balance due and using a balance-transfer card can be very helpful ways to use interest rates to your advantage.


A reputable credit repair specialist can help you find other ways to successfully get out of credit debt. If you’re tired of struggling on your own, find out how our advisors can help you repair your credit debt. Contact us today.

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Your guide to debt collection

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

As of March 2020, consumer debt totaled a whopping $14.3 trillion in the United States, and around a third of all Americans had at least one debt in collections. They weren’t just struggling with paying off debts—the Consumer Financial Protection Bureau noted in 2019 that about one-fifth of the complaints it received were about debt collectors. This isn’t a surprise when you consider that there are approximately 7,800 collection agencies in the United States, and the third-party debt collection market is a $12.7 billion industry.

If you’re dealing with a debt in collections, learning about your rights and the options you may have can help you take positive action. And that can help increase the likelihood of a more favorable outcome for you. Find out more below.

Your legal rights against debt collectors

The good news is that you’re not alone when you’re dealing with debt collectors. You actually have a lot of laws on your side. A number of federal acts specifically address debt collections, and government organizations are in place to help you protect your rights as a consumer.

FDCPA

The Fair Debt Collection Practices Act provides numerous provisions to protect consumers from unfair debt collection activity. Some of those provisions include:

  • Debt collectors can’t engage in harassment or abusive behavior, including calling excessively or outside of normal times.
  • Collectors have to disclose that their communication is an attempt to collect on a debt.
  • You have the right to ask debt collectors to stop contacting you. They have to abide by your written request, but that doesn’t mean you stop owing the debt.
  • When asked, debt collectors have to provide validation of your debt.
  • Debt collectors can’t violate your privacy by discussing your debt with others.

FCRA

The Fair Credit Reporting Act helps protect you from other types of abusive actions by debt collectors. Specifically, this law mandates fair and accurate credit reporting. If you find a potential error on your credit report, you can write to the bureau in question and ask them to investigate it. By law, they have to investigate, and if the reporting creditor or collection agency can’t prove those facts, the bureau has to delete or correct the information.

The FCRA also gives you the right to at least one free credit report per year from each credit reporting agency. Plus, you have the right to a copy of your credit report if it’s used to evaluate you for credit and you’re denied because of information in your credit file.

TCPA

The Telephone Consumer Protection Act restricts how autodialers and other phone call tech can be used. Specifically, debt collectors and others can’t use autodialers—aka robocallers—to call your cell phone.

UDAP regulations

Unfair or Deceptive Acts or Practices refer generally to behaviors in financial and accounting sectors that aren’t legal or ethical. They’re prohibited by Section 5 of the Federal Trade Commission Act and regulated by a number of entities at the federal and state levels. What you need to know with regard to debt collectors is that anyone dealing with financial products must be transparent and honest about certain facts, such as how much you owe and how it was calculated.

State debt collection laws

As a federal law, the FDCPA is enforced in all states. Some states enforce it differently than others, and some have their own laws that add even more protections. States that have their own fair debt collection laws include California, Colorado, Florida, Georgia, Illinois and Washington.

Summary of your rights

Overall, the list of rights and protections set out by these laws is designed to make debt collection fairer for consumers. The laws seek to ensure you have:

  • Access to fair and accurate information about your debts
  • Protection for your privacy
  • Protection against abusive actions by debt collectors

How debt collection agencies work

Debt collection agencies are required to follow all the laws above. But just because the law is on your side when it comes to fairness and accuracy, it doesn’t mean you won’t ever deal with a debt that puts some stress on you. Understanding how debt collectors work can help you know what to expect and when someone might be crossing the line into illegality.

When can a debt be sent to collections?

A debt can go to collections as soon as you default on it. The exact timeline depends on your contract with the lender and the lender’s policies.

Statute of limitations on debt

The statute of limitations on debt is how long a creditor or collection agency can attempt to collect through legal means, including filing a lawsuit. The timeline varies by state and usually starts when you first default. In some cases, you can reset the statute of limitations by making payments on old debt, so this is something to be aware of when dealing with collectors.

How debt collection agencies are allowed to contact you

Debt collection laws dictate when and how collectors can contact you. Debt collectors can’t call certain workplaces, and they can’t continue to call you at your workplace if you tell them to stop.

Debt collectors can also only call you between the hours of 8 a.m. and 9 p.m. in your time zone. They’re allowed to contact you via methods that include phone, email, fax or mail, and starting in fall 2021, debt collectors will also be allowed to contact you via text and social media.

What to do when a debt collector contacts you

It can be tempting to throw a collections bill in the trash or shove it into a drawer to deal with down the road. That’s even more tempting if you know you can’t pay the bill today. But ignoring the debt doesn’t make it go away and can lead to even more stress down the road.

Here are some steps to take if a debt collector contacts you:

  • If the collector calls you, ask for verification of the debt or something in writing. Never just pay debts over the phone that you don’t know the details of—even if the collector is trying to pressure you.
  • Once you receive the first notification of the debt in writing, review the information and see if you think it’s accurate. You can contest the information or ask for validation of the debt, requesting documents such as a signed contract or a statement. However, you only have 30 days to do this, so don’t put it off.
  • If you plan to make a payment right away, double-check all the information first. Making a payment is seen as acceptance of the debt, so doing so can make it harder for you to dispute something about the debt later.
  • In cases where you want to dispute the debt or don’t think the amount you owe is correct, gather your own documentation. Pull out old statements, contracts or bank statements that show you already paid the debt, for example.
  • Once you determine the debt is yours and is accurate, pay it off quickly if you can. That helps you avoid issues such as lawsuits or judgments that could lead to garnishments or liens.
  • If you receive a court summons because you’re being sued by a collector, show up in court on the hearing date. Not showing up usually means the judge decides for the creditor by default, which means a judgment will be entered against you. That judgment makes it possible for the creditor or collection agency to garnish your wages or checking account or enter liens against your property.
  • Bring legal representation if you can. According to Pew Research, less than 10 percent of people in these types of cases have legal representation, but those who do are more likely to win their cases or reach an agreed-upon settlement.

Remember that collection situations can be complex and your situation is unique to you. If you’re not sure what the best action for you is, you may want to consult legal professionals.

Illegal debt collection practices

Illegal or unethical debt collection practices are unfortunately more common than many realize. From January 1, 2020, through September 2020, for example, the FTC’s Consumer Sentinel Network received tens of thousands of reports from consumers about concerning collection practices—more than 85,000 reports, to be exact. And roughly 45 percent of those were from people who didn’t owe the money or who said they were targeted by threatening or abusive collector behavior.

The first step to recognizing whether you’re being targeted by illegal practices is knowing your rights. If your rights under any of the above laws are being infringed upon, someone might be doing something illegal. You can report those actions to various agencies—more on that below.

Before we get there, though, here are some red-flag behaviors to know about. These are all potential signs that something illegal is going on:

  • Someone claims they can or will arrest you for a debt.
  • Someone shares information about your debt with your family members or anyone who is not you.
  • Someone attempts to claim you owe a debt or must pay a debt that belongs to a relative.

How to report illegal debt collection behavior

If a debt collector violates any of the debt collection laws discussed above, you can and should file a complaint. There are several agencies where you can file these types of complaints, and depending on the situation, you might even file a complaint with more than one.

You can report a debt collector to:

  • The Federal Trade Commission. The FTC enforces the FDCPA and uses the FTC Act to help stop unfair debt collection practices. You can report issues such as bad business practices, scams and fraud to the FTC. Gather the following information and then complete the reporting process on the FTC’s site:
    • Details of the activity and product or service involved
    • Any amounts you paid and the dates you made payments
  • The Consumer Financial Protection Bureau (CFPB). You can submit a complaint online to the CFPB. Complaints are used to launch potential investigations and ensure compliance, and the CFPB says 97 percent of people who complete its form get a response within around 15 days. The CFPB does reach out to the collection agency in question to get a response about the matter too.
  • The Association of Credit and Collection Professionals (ACA International). The ACA is an industry association for collection and credit companies and professionals. Membership can bring important perks, but having members who aren’t compliant with collections laws isn’t ideal. If a collection agency that’s a member of this organization is acting illegally, you might want to let the ACA know.
  • The Better Business Bureau. The BBB is a go-to resource for many consumers. You can check with the BBB to find out if a collection agency already has complaints for the type of activity you’re dealing with. You can also file your own complaint.
  • Your state’s Attorney General. States have their own oversight and rules into collections. They also all enforce the federal laws listed above. You can report illegal collection activity to your state Attorney General’s office. Locate the website or contact information for your state’s office at USA.gov.

What to do if you can’t pay the amount in collections

So, what happens if you owe the money and the collector follows all the laws? You may need to pay up. If you can’t pay the amount due immediately, you have a couple of options to consider.

Debt settlement

A debt settlement occurs when you agree to pay a lesser amount and the collector agrees to consider the matter closed. Often, third-party debt collectors buy a debt for pennies on the dollar, so they can still make money even if you don’t pay the total amount due. That makes them more likely to settle for something over nothing.

Settling a debt means you don’t legally owe it anymore. But make sure you get the agreement in writing or the debt collector could try to come after you for the rest.

Paying off a debt—in full or via settlement—doesn’t necessarily improve your credit score, especially immediately. But it also doesn’t hurt your score, since the collection account is probably already on your report. And it may be better than a charge-off.

Bankruptcy

If you can’t pay the debt and are dealing with other financial issues, you might consider bankruptcy. Filing a bankruptcy petition puts an automatic stay in effect, so debt collectors can’t continue collection activity. However, bankruptcy can have serious consequences for your credit, so make sure to talk to an attorney first so you can make an educated decision.

Negotiation

You may be able to negotiate with the collection agency to make several smaller payments over time to pay off the debt. Again, make sure you get any agreement in writing to protect yourself.

Watch your credit during the debt collection process

Whether you’re dealing with collection activity on an account you don’t think you owe or you want to repair your credit after dealing with legitimate collection activity, Lexington Law may be able to help. Find out more about our credit repair services to see how we can help you dispute inaccurate information on your credit score and begin taking positive actions to potentially impact your credit score.


Reviewed by Brad Blanchard, Supervising Attorney at Lexington Law Firm. Written by Lexington Law.

Brad is an attorney at Lexington Law firm whose practice is primarily focused on corporate compliance. His focus is primarily in the areas of marketing and advertising of financial services. He regularly deals with issues related to FTC Regulation 5, UDAAP, FCRA, FDCPA, CROA, TCPA, and TSR. He also has experience in LLC formation, contract review and negotiation, and trial and litigation experience in the areas of consumer protection and family law. Prior to joining Lexington Brad worked on Department of Labor administrative law cases and federal class action lawsuits. He also externed for a Utah State Court trial judge where he worked on both civil and criminal cases. Brad is licensed to practice law in Utah and Ohio. He is located in the North Salt Lake office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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