personal debt collection

Personal Debt Collection Success – 6 Steps to Collecting Money Owed You

by Neal Frankle, CFP ®

When someone owes you money, you can quickly find yourself in the personal debt collection business even though you don’t want to be. There are so many companies out there helping people escape their responsibilities. I figured it was time to help you make sure nobody skips out. After all…you loaned money to somebody – they promised to pay you back. You lived up to your side of the bargain – they didn’t.

Before trying anything else, offer them a debt payment plan. If that doesn’t work, take these steps to start collecting money you are owed:

1. Understand the dynamics.

The person who owes you money has broken his/her word. They’ve broken a boundary – not you. Don’t worry about being nice. Don’t worry about what they think or say about you. The facts are that you did someone a favor and they’ve taking advantage of you. Get a little angry and stay that way. You are no longer friends and nothing you or they do from this point on is going to change that.  This doesn’t mean you have to pull out the heavy artillery.  There are plenty of ways to collect without hiring an attorney.

2. Remind them about the debt.

Remind them of the circumstances. They asked about borrowing money…not you. They asked for a loan and you gave it to them. Remind them what they promised to do. Be specific about the amounts and dates they agreed to.

Ask if you have it right or if you’ve made any mistakes about the date, the amount or the promise. One of three things will happen:

A. They’ll pay you right then and there – this happens about as often as politicians live up to their promises, so don’t hold your breath.

B. They’ll agree and recommit to pay you. In this case, get them to sign a letter of understanding.

C. They’ll use their selective memory skills to reconstruct the arrangement. They’ll say you gave them a gift or made an investment or whatever. They might even start being rude to you.

If that’s the case, don’t confront them. Just let them know that they are responsible to pay you and you are going to collect. Don’t give them a chance to respond. End contact at that point.

3. Send a letter.sneaky

Write a letter recounting the date of the loan, the amount borrowed and any other facts regarding the transaction. This should include the repayment terms that the debtor promised to make.

In this letter, you should demand that the person who owes you the money live up to their promises. Tell them how much you expect to be paid and when.

Whatever you do, don’t get emotional. If you want to talk about your feelings, tell a friend or a therapist. The time for warm and fuzzy talk is over with this person. The letter should be cold and dry. The facts…just the facts. Be brief and very specific.

Send this as a certified letter and demand a response within 10 days of receipt. 

4.  If all else fails, get your lawyer to write a letter.

If your deadbeat former friend doesn’t respond favorably by the time you stipulated, it’s time to call out the artillery. Call a local lawyer and get them to give you a quote for sending your “friend” a letter. Give the letter you already sent to your attorney and make sure the lawyer rewrites it in her own words.

Make sure the lawyer sends the letter certified and gives you a copy. Before you hire the attorney, get a firm price quote. Make sure the time and expense is worth it. As a rule of thumb, the expense should be less than half the amount you want to collect.

5. Make sure the lawyer’s letter goes out.

The letter must demand payment with a specific amount and date. If you don’t receive the payment, send a copy of the lawyer’s letter again. Like the first, send this letter certified.

6. Go to court.

If the deadbeat doesn’t pony up by this time, go to court and file a small claim. You may be able to recoup your costs – ask the attendant at the court.

If the person who owes you money isn’t a complete dunce, he’ll see that you are serious about collecting the money you are owed and make a good effort to pay up.

Just by seeing how organized and committed you are, he may get his act together.

The one last step you might consider is working with a collection agency. I haven’t ever had this experience, but I bet it would work pretty well.


Next time somebody comes to you looking for a loan, send them to a peer-to-peer lending group rather than the Bank of You.

Have you ever gone through a process like this? Have you ever collected on a personal loan from a “friend”? How did you do it? Was the friendship able to survive?


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