Having a large amount of debt can be a stressful—even scary—situation for anyone. Even if you make a lot of money and have a solid career, debt can build up on you surprisingly quickly. One of the most stressful parts of holding a large amount of debt is dealing with creditors and debt collectors.
When you start getting collection calls, mail, and text messages requesting payment—or even warnings of account closures and damage to your credit score—it can be incredibly unsettling.
Speaking to a creditor might sound intimidating, but if you’re trying to get out of debt it can also be extremely helpful. Knowing how to negotiate with creditors is important for making the process of dealing with debt less stressful.
To help you on your journey to get out of debt, here’s a brief explanation of what creditors and debt collectors can do, some tips on speaking to them, and a few ideas for getting out of severe debt.
What’s the Difference Between a Creditor and a Debt Collector?
A creditor usually refers to the original lender that extended you the credit. A debt collector can be a third party that gets involved in order to collect the outstanding debt after the creditor has already attempted to do so.
If you do not make payments towards your debts, your creditors can attempt to collect the balance owed in a few different ways. For example, they may transfer your account to their internal collection department, or they might hire a debt collection agency to collect the balance owed on their behalf. They can also sell your debt to a third party, which will then attempt to collect the debt.
As soon as your debt is sent to a debt collector or collection agency, your credit score will take a nosedive, so it’s important to try to avoid this from happening.
Your creditor might send you a notice warning you that your debt will be transferred to a debt collector or collection agency. If this happens, reach out to your creditor immediately. You may be able to avoid having your debt sent to a debt collector by negotiating with your creditor a repayment plan and/or by paying a portion of the total debt owed.
What Can Collection Agencies and Debt Collectors Do in Canada?
There are limits on what debt collectors and collection agencies can do to collect on debts that you owe. So, what can debt collection agencies do in Canada?
First, it’s important to know that different provinces might have different regulations for debt collection.
For example, in Ontario there is the Collection and Debt Settlement Services Act, which places specific restrictions on what debt collectors/collection agencies can and can’t do when attempting to recoup money owed. Some of the basic restrictions on debt collectors include:
- They cannot contact you more than three times per week unless you’ve given them permission to do so.
- They cannot contact you on statutory holidays.
- They cannot contact you between 9 p.m. and 7 a.m., or on Sundays before 1 p.m. and after 5 p.m.
- They cannot charge a fee or ask for more money than what you actually owe as a penalty.
- They cannot employ “prohibited practices” or methods in the collection of debt. This includes harassing you, using threatening language in their communications with you, or sharing information about your debt with any other person (who is not a guarantor on the debt owed) or organization without your consent.
How Does the Debt Collection Process Work?
The process for debt collection typically begins with “past due” or “late payment” reminders from your creditor once you miss a payment or don’t meet your monthly minimum payment. If all you miss is that one payment, the consequences aren’t usually too severe—you might get assessed a late fee or interest increase (which could ding your credit score), depending on the creditor and whatever agreement you made with them.
After a few notices are sent, the creditor might transfer you to their internal collections department or a third-party debt collection agency to reach out to you about paying your outstanding debt.
If your debt goes unpaid for long enough, then the creditor or debt collector can get the court system involved. A creditor can take you to court for unpaid debt. This doesn’t mean that you can go to jail for unpaid debt. Instead, what the creditor or debt collector will do is seek a judgment in court so they can seize your assets and/or garnish your wages to reclaim their money. If you’re looking for advice on how to deal with creditors trying to garnish wages, you will need legal counsel.
However, it should be noted that court filings are an extraordinary circumstance. Because of the cost of filing a lawsuit, most creditors or debt collection agencies won’t go to that extreme unless you owe a lot of money—such as tens of thousands of dollars.
On the other hand, they will likely continue with collection efforts such as calls, emails, and more even after the time limit for bringing you to court to resolve your debt has run out. This time limit varies between 2-6 years from the acknowledgment of the debt, depending on the province you live in.
Tips on How to Deal with Creditors
If you’re wondering how to deal with creditors when you can’t pay your bills, you’re not alone. To help you learn how to negotiate with a creditor, here are a few tips that you can follow:
1. Communicate Regularly with Your Creditors
It can be tempting to simply turn off your phone or ignore your mail when you start getting reminders from your creditors to pay your bills. However, this is not a good idea.
When you neglect to communicate with your creditors, you’re leaving the decision of how to resolve your debt entirely in their hands—which can include selling your debt to a debt collector or winding up in court over the money you owe.
Worse yet, if the creditor does decide to take things to court and you don’t file a defense within a specified timeframe, it could be grounds for you to be “noted in default.” Here, the plaintiff (your creditor) will, to vastly oversimplify things, claim that you aren’t contesting the claim and have the court order you to pay what they’re asking for.
Without some kind of extreme circumstance (such as never receiving the court summons or being hospitalized), it is very difficult to fight a default judgment.
Another reason to regularly talk to your creditors is to negotiate alternative arrangements with them. Most companies aren’t in the business of bankrupting their customers. If the creditor is legitimately worried that you might file for bankruptcy to get out of debt, they’ll often be willing to make alternative arrangements, such as a payment plan you negotiate with them directly or working with a credit counselling agency to create a realistic payment plan on your behalf.
Of course, this will vary from one creditor to the next.
2. If You Believe That a Collection Agency or Debt Collector Is Harassing You, Contact the Authorities
Do you know how to deal with a harassing creditor or debt collector? Regardless of how much money you owe, creditors and debt collectors have to follow certain rules when communicating with you. If you believe that a collection agency or creditor is violating those rules, it’s important to reach out to the appropriate provincial and territorial consumer protection authorities and report the malicious behaviour.
Some collection agencies rely on their targets not knowing what the rules are to bully and harass them into making payments. This can include pressuring them to obtain a subprime loan in order to pay the debt in full.
Reporting malicious behaviour can be a crucial step for dealing with creditors and collection agencies. At the very least, contacting the authorities and having them discipline the collectors should get them to ease off a bit. If they continue harassing you, further legal action may be required. In this case, you may want to consult a lawyer and notify the appropriate provincial/territorial consumer protection authority of their continued harassment.
3. Check Your Credit Report and Score
When learning how to deal with creditors when you can’t keep up with payments, it’s important to be aware of your overall financial situation. Part of this involves checking your credit report and credit score to see what has been reported to the credit bureaus and how it might impact your ability to secure financial services.
Your overall credit score can have a significant impact on how you choose to deal with your outstanding debt. For example, if you’re looking to get a debt consolidation loan, then having a high credit score will be a huge advantage. Lenders are more likely to give you favourable loan terms (such as low interest rates) if you have a good credit score.
By checking your credit report and score prior to applying for a loan, you’ll have a better idea of whether or not your application will be accepted and if the loan terms will be favourable. You can get a free credit report through Canada's two credit bureaus: Equifax and TransUnion.
4. Consider Alternative Debt Relief Options
If your debt exceeds your ability to pay, you may need to consult a professional, such as a non-profit Credit Counsellor, or even consider insolvency.
In some cases, the creditor may be willing to offer you alternative arrangements to help ensure they can collect the majority of what is owed. When negotiating with your creditors, it can also help to have some support from a certified Credit Counsellor.
A Credit Counsellor can even negotiate on your behalf to set up a debt consolidation program (DCP) that addresses both your needs and the needs of your creditors. Under this program, you get to put your various unsecured debts into a single monthly payment with a clear payoff date while your creditors get some peace of mind knowing they will be recovering their money. This is often a great way to get out of debt.
Do you need help from someone who knows how to deal with creditors? Reach out to Credit Canada now for information, resources, and support!
