5 things debt collectors wish you knew

5 things debt collectors wish you knew

People can fall into debt for any number of reasons, and while it’s not the best position to be in, it can happen to the best of us.

It can be a scary experience to be contacted by a debt collector, but it won’t help the situation to bury your head in the sand.

RateCity spoke to EC Credit Control Debt Collector, Chris Loveridge, about his experience chasing consumer and commercial debt, and what he wishes more people knew about his industry.

What is a debt collector? 

A debt collector is someone who works on behalf of creditor clients to recover outstanding consumer and commercial debts.

In Australia, debt collection is regulated by both The Australian Competition & Consumer Commission (ACCC) and Australian Securities and Investments Commission (ASIC). Both debtors and debt collectors have rights and obligations to ensure that deb collection activity is consistent with consumer protection laws.

Their work is not the most popular, and they are often criticised by those who may be uneducated about the debt collection process. However, it is important to keep in mind that debt collectors are working on behalf of creditors who have hired them to help recover outstanding payments.

What debt collectors wish you knew:

  1. They’re not restricted to phone calls

Don’t be shocked if you find a message in your Facebook inbox.

It is perfectly legal for modern day debt collection agencies to contact you in ways besides a phone call, such as social media.

“Modern debt collection agencies have little or no face to face contact with debtors, preferring to utilise contact technology options such as telephone, fax, mail, SMS and email to facilitate faster resolution,” said Mr Loveridge.

Reasonable contact times:

Contact by telephone Monday – Friday 7:30am – 9pm
Weekends 9am – 9pm
National Public Holidays No contact
Face-to-face contact Monday – Friday 9am – 9pm
Weekends 9am – 9pm
National Public Holidays No contact
All workplace contact Debtor’s normal working hours (if known), or 9am – 5pm on weekdays.
Social media & email Any time, however account cannot be shared with another person and message cannot be viewed by anyone besides debtor.

 

  1. “How can I pay in full today?”

This is the ideal way to respond when a debt collector contacts you, according to Mr Loveridge.

“There is a small section in the ACCC Guidelines for collectors and creditors that covers a debtor’s responsibilities,” said Mr Loveridge.

The ACCC guidelines state that when debtors are legally responsible for paying the debts they legitimately owe, they should:

  • Not attempt to avoid the obligation to satisfy debts they have incurred;
  • Promptly contact creditors and debt collectors when they are experiencing financial difficulties and attempt to negotiate a variation in payments or other arrangement; and
  • Be candid about their financial position, including any other debts.
  1. They can help with payment plans 

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Anyone can find themselves experiencing financial difficulties, and debt collectors understand this better than anyone. 

“Debt collectors will most likely be prepared to negotiate a suitable payment plan to suit both debtor and creditor if it is clear the debtor is struggling financially. The debtor can also avail of local budgeting services to assist in meeting their financial obligations,” advised Mr Loveridge.

It is also not unusual for a debtor to dispute the debt in question, however you should be prepared to put this in writing.

“Whilst a debt can be verbally disputed, in written format there can be no ambiguity around what the dispute entails and it forms a clear trail should legal action ensue,” explained Mr Loveridge.

  1. They also want to avoid legal action

It’s not just debtors who are protected by laws and regulations. There are legal consequences to the debtor if non-payment occurs and the creditor holds a signed contract.

These include the withholding of further goods and services, as well as default listing the debtor with a credit reporting agency.

What is a default listing?

According to credit agency Equifax, if you miss a payment worth more than $150 and it is more than 60 days overdue this is listed as a default. A default remains on your credit report for five years.

But it’s important to keep in mind that both creditor and debt collector also want to avoid this process.

“Court action against the debtor is an action of last resort for the creditor,” said Mr Loveridge.

“[It] should not be dismissed by the debtor, and may result in bankruptcy or liquidation. In most cases, any legal action taken against the debtor will result in additional costs and interest being added to the claim.”

  1. Debt collectors are not to be feared

The most important thing to keep in mind if you’ve been contacted by a debt collector is that they’re here to assist you too.

“Whilst debt collectors are always acting on the instruction of their client and are seeking payment in full, there are obligations to also consider the debtors financial circumstances which may lead to a payment arrangement over an agreed period,” said Mr Loveridge.

“All good debt collectors will work with you to have a positive outcome but you should remember that it isn’t the debt collector who has put you in this situation.”

If you’re feeling too nervous to answer the phone, keep in mind that it’s important to not ignore an approach from a debt collector as this can be met with escalated action and an adversely impacted credit rating, bankruptcy or liquidation.

“Keep the communication lines open at all times,” added Mr Loveridge. 

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What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

What are the requirements of an ING Bank locked savings account?

An ING bank locked savings account - also called a term deposit - offers you interest in exchange for holding your money for a period of time.

The terms offered include as little as 90 days or as long as two years. Generally, the longer you lock your money away, the higher the rate of interest. 

The minimum deposit amount for an ING locked savings account is $10,000. 

To be eligible to apply, you must: 

  • Be an Australian resident for tax purposes
  • Be aged 13 years or older
  • Hold the account for personal use (ING offers business term deposits as a separate product). 

 

Do I have to claim interest on my savings account?

When you lodge your income tax returns, you must include in the documentation all your sources of income, including bank interest. Your bank will report any interest you earn on the funds in your savings account to the Australian Tax Office (ATO). When the ATO then compares this information with your tax returns,  you also need to have mentioned the interest earned. If there is any discrepancy, you’ll receive a letter from the ATO. 

Avoid this situation by ensuring you receive your bank statement with interest noted. Then declare the interest in your tax returns and pay the tax that’s applicable based on the income tax rate.

You only need to claim your share of the interest earned for joint accounts. If you manage an account for your child and receive or spend money via this account, you will also need to report any interest earned from said account.

Do banks run credit checks on savings accounts?

When you apply to open a new savings account, some providers may conduct a credit check, meaning that they will ask a credit bureau for your credit history. This isn’t always the case on savings accounts though and depends on the provider, as you aren’t borrowing money. 

As you are opening a savings account and not borrowing funds, this credit check is considered a soft inquiry and should not affect your credit score. If the bank has run the credit check, you can often still open a savings account even if you have a poor score, provided you meet other requirements.