Never talk to a collection agency on the phone. Block their number or let their calls go to voice mail. The more you talk to them, the more it encourages them to harass you. Use this tactic instead:

It doesn't always work, but if a debt is charged-off by the original creditor and transferred to a third party collection agency, you should always send them what is known as a Debt Validation Letter via certified mail.

To legally prove a debt is valid and to collect on it, they must:

1. Provide a copy of the original application/contract with your signature verifying that you are, in fact, the original debtor.
2. An accounting of the debt. They can't just say you owe $10,000 without being able to prove it.
3. Proof that they have authority from the original creditor to collect on the debt in question.

If they can not provide these three things (and they almost never can), they are required to cease collection activities including placing derogatory marks on your credit report and making harassing phone calls.

Sometimes, however, they will create phony affidavits, but any judge would likely laugh such a thing out of court because it is “hearsay”. The best thing to do in such a situation is to retain an attorney who specializes in consumer credit law and have them deal with it. Once an attorney gets involved, most collection agencies will back off immediately.

How to Rid Yourself of Debt Step by Step without Alerting them to your Willingness to Pay

1. Don't use a debt consolidation company! They're rip-offs. Typically, they receive your entire first payment (to your debtors) as a bounty for negotiating your payment schedule.
2. Get a copy of your credit report so you know who has your debt and for how much.
3. Deal with your debts one at a time — smallest to largest.
4. When you have some money, call the first debt collection company (the one with the smallest debt). Negotiate a settlement in full. Don't pay them anything until they agree in writing that your payment settles the debt in full. (Email counts for in writing). Do not send them a personal or business check that has your checking account number on it and don't give them electronic access to your checking account — they will clean it out. Send them a cashiers check for the settlement amount instead.
5. When you have some money again, repeat with the next largest debt until finished.

Make a Discount One-Time Offer

Credit card debt is typically sold to debt buyers for about $0.06 on the dollar, and the buyer/collector is usually very happy to collect a fraction of the debt if it means they earn a profit on your account.

For example, a $5,000 debt costs less than $200 to acquire. Anyone can see that a fractional payment will get them to a tidy profit quickly - it's a simple negotiation, now. How little can you pay to settle a debt?

Alas, once you settle, the IRS will send you a 1099 form of the debt as income. So you will have $5,000 added to your 1040 and taxed on it.

Wait It Out

If the debt is over 3 years old, consider ignoring it. Bad marks remain on your credit history for 7 years after the LAST payment. By making any payment, even for $0.01 you reset the 7 year clock. If the debt is over 7 years old - definitely ignore the debt collectors.

Good Luck!

Any of this ring untrue? Have better, tested advice for dealing with shady Collection Agencies?