Financial wellness benefits should account for collections debt

Millions of workers have collections debt, mostly from medical debt (still), which can drag on worker health, productivity, and credit, and your organization, for years.

Financial wellness benefits that proactively address collections debt will help you drive wellness, profits, and impact.

Millions of workers have debt in collections, 4.81 “proportion of consumers with collection” as the NY Fed puts it.

While heading in a bad direction, this proportion is decent by historical standards, just not for the millions of workers with debt in collections whose ability to obtain everything from credit to auto insurance, a job to a roof overhead, is severely stunted.

For them, it’s extremely stressful, which is bad for people, profits, and impact, not to mention for equity.

All debt is not equal

All debt is not created nor enforced equally.

“Racial disparities in debt collection practices aggravate the harm of debt on household financial health and the ability to build wealth,” according to Aspen Institute’s Disparities in Debt.

Among the concerning facts in the report:

Black consumers are more likely to be sued for smaller debt amounts compared to white consumers;

Black and Latinx consumers face a higher rate of debt collection lawsuits, and;

More than 70% of debt collection lawsuits result in a judgment against the alleged debtor, even though debt collectors often lack proof or records.

Medical debt harms workers for years

More than half of debts in collection are still medical debt.

This is after major credit bureaus removed paid medical collections from credit reports, stopped reporting unpaid medical collections until those debts were one year old, and eliminated medical collections under $500 from credit reports.

In other words, workers are still being penalized, often for years, for something other than frivolous consumerism, to traffic in tedious tropes: problems navigating complex health care billing and insurance reimbursement processes unique to us in the U.S.

Adding to this (financial) injustice is the fact that medical debt is a poor predictor of a person’s credit risk.

A new federal rule proposed June 11th could help ensure medical information does not unjustly damage credit scores by doing the following:

• Remove exceptions that let lenders use information about medical debt to make determinations about someone’s creditworthiness.
• Prohibit credit reporting agencies from including medical debt on credit reports sent to creditors if the creditor is prohibited from considering it.
• Bar lenders from using medical devices like wheelchairs and prosthetic limbs as collateral for loans or from repossessing them if someone can’t repay the loan.

The fact that we need these rules suffices for now, enough said. Well, what about debts unrelated to medical care, sophisticated employers ask?

Collections debt harms workers of color disproportionately

Half of workers report being contacted by collectors regarding debts they do not owe; cool;

Rates of contact are significantly higher for workers of color than for white people; you don’t say?

Credit scoring models heavily weight the presence of a collections tradeline in a credit report, significantly penalizing people’s scores even when the information is inaccurate; sucks.

More than half of adults in Native communities have debt in collections — more than the rates in white communities and other communities of color; oof.

Financial wellness benefits should account for collections debt

Financial wellness benefits should account for collections debt. Your profits, impact, and people will benefit. Why?

Because, employers who help workers solve for debt collections double their profits, send EBIDTA off the charts, setting Hydra afire.

Seriously, now, collections debt can hamper your workers’ health, productivity, and credit for years.

Equip workers you care about with knowledge of their rights re debt collections and your people, profits, and impact will soar, somewhere on the order of 100 proportion.

Personal financial coaching from TrustPlus

Personal financial coaching from TrustPlus helps reduce employee financial stress from collections debt and from the myriad financial stressors that prevent your workers and your organization from performing at its best.

We include below two resources for employers who understand the growing collections-debt challenges your workers face and why proactively addressing them will enable you to capture the benefits of a financially healthier workforce.

In Tips For Debt Settlement Negotiations and How to Negotiate with a Debt Collector, TrustPlus Senior Financial Coach Dametria Douglas and Financial Coach Shanick Yermenos share 11 tips for negotiating with a debt collector and roleplay how a debt settlement negotiation could play out.

Share them in a context that makes sense for your organization if you’re so inclined.

Your people and your organization will benefit.

How to Negotiate with a Debt Collector

TrustPlus Senior Personal Financial Coach Dametria Douglas and Financial Coach Shanick Yermenos roleplay what to say to a debt collector to reduce and eliminate debt.

Dametria, owes old hospital bill debt:

Hi, my name is Dametria and you’ve been calling me about my hospital bill that’s past due. It’s account number 3 8 9 7 5. I’m eager to work something out with you. Can you help me?

Shanick, debt collector:

Sure. I’ll be more than happy to help you. I see you have an outstanding debt that has now reached 450 from medical debt from three years ago. What other information can I provide you with?

Dametria:

Thank you. I’m aware of the balance and I’m not disputing it, but I can’t pay back the full four 50 now. My job barely covers rent and utilities, but I can make a payment of $75 and can pay another $50 if the balance can be forgiven.

Shanick:

Look, you need to take responsibility for your debt because your debt is now in collections. Your credit is being further damaged with every day of delay in payment. And let me be clear, I’m not in a position to offer you a deal.

Dametria:

Okay? Could you please transfer me to your supervisor? I’m willing to pay you, but I need you to meet me halfway. Since you don’t seem to believe me, I want to see if someone else might.

Shanick:

Okay. Before I get my supervisor on, I’ll tell you that I’m not really authorized to do much. Your debt will remain $450, but we can be flexible on payment.

Dametria:

Great. Great, great, great. Thanks so much for being open to continuing the conversation. As I said, I can pay you $125 over the next two months, but I have a financial counselor who has shown me that my current budget will not allow me to pay back the debt in full for another two years. Don’t we both win If I pay you most of what I possibly can now and in return you forgive the rest?

Shanick:

Well, I can’t just accept $125, but if you can pay $125 now and then pay $25 per month for six months, then I would forgive the balance.

Dametria:

So if I pay $125 now and $25 each month for six months, that’s $275. I’m not sure I can do that. Would you accept a hundred dollars now and then $25 for five months? I’m happy to hold while you see what you can do.

Shanick:

Please do. Hold on. Hi. Yes, I’m back. My supervisor has approved this arrangement. If you can make a payment of $100 within three business days and $25 payments per month for five months, your debt will be forgiven upon receiving your final payment.

Dametria:

Thank you. Will you please confirm this also means that I won’t pay any interest over the next six months as well? And can you provide this in writing?

Shanick:

Yes, that is fine.

Dametria:

Thank you. End of call.

Tips For Debt Settlement Negotiations

TrustPlus Senior Financial Coach Dametria Douglas and Financial Coach Shanick Yermenos share 11 tips for negotiating with a debt collector.

1. Before contacting a creditor or collection agency to negotiate a settlement, always make a budget of your monthly income and expenses so you know what you can afford to pay. A TrustPlus Financial Coach can help you navigate this step. Whether you are entering into a payment plan, or planning a lump sum payment, you never want to agree to an amount that you cannot afford.
2. When dealing with a collection agency (not the original creditor), NEVER give any information that the collector should already have: the name of the original creditor, the date it became delinquent, etc. The only information you should provide is your name, and the reference number for the collection from the collection letter.
3. Keep detailed notes. Record the agent’s name, the date, the time, and specifics about the conversation. Some collectors have a confirmation number for the call. Get it!!! If you ever go to court you can point to that number and request they play the call as proof of your willingness to settle, or your settlement agreement.
4. Dealing with debt collectors can be stressful, but remember to stay pleasant and calm. Always use the name of a real person at the collection agency if possible. If you are first talking to a receptionist, ask them to give you the name of the person you will be talking to so you can greet them upon being transferred.
5. Be sincere, but direct and to the point. Give the collector a chance to offer suggestions in case they are actually willing to offer a better deal than you expect. Ask the agent what the current settlement amount is before going into negotiations. If what they offer fits your budget, great! If not, have your budgeted offer in mind but counter offer a little lower than that amount in case the collector does not accept it outright or wants to negotiate for more. Again, never agree to an amount that your budget cannot afford.
6. Once you have agreed on the amount, decide on a payment plan or a lump sum payment. Example of Monthly Payment: $1,000 is the agreed upon settlement, but your budget only has a surplus of $50/month, negotiate payments of $50 a month for 20 months. Have them confirm that the $1,000 settlement offer will not incur more fees or interest; and that the amount won’t keep increasing after you make your first payment. Example of Lump Sum Payment: $1,000 is the agreed upon settlement, ask for this offer to be provided in writing.
7. Get the agreement in writing BEFORE you make any payments; whether they are monthly payments or lump sum payments.
8. NEVER give a bank account number! A collector will try to press you for this but stay firm. Inform them that once you receive the agreement in writing, you will send a money order to the address they provide you for payment.
9. Once an offer and payment method has been agreed upon, go for it all! Ask them to delete the negative info from your credit report once the account is paid for. If they won’t, ask them to report the account as “PAID” instead of “settled” once it is paid off. If they do not agree to this, that is fine. Do not argue with them over this part.
10. If they refuse your offer, be assertive and reiterate that “for the record” you really want to pay, but can only afford what you have offered.
11. If they still refuse to accept the offer, end the call and try again on a different day and time to speak with a different customer service representative. Do not feel obligated to stay on the phone with them if they are not being reasonable.

Schedule a time with TrustPlus to discuss strengthening your financial wellness benefits to account for collections debt.