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.

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 amounts and dates.

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.

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. Call in the big guns.

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.

BONUS TIP

Next time somebody comes to you looking for a loan, send them to a p-2-p lending group like Lending Club (for more information, see my Lending Club review).

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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{ 35 comments… read them below or add one }

David Moore May 20, 2014 at 3:40 AM

I agree to you also Mr. Neal but I think, We should first talk to them politely who are not responding to us for debt recovery. Because, May be someone has genuine problem, So we need to listen him carefully and handle the situation by offering the good plans for debt repayment. If we will talk with them in their ways they will definitely return payment but some times we should also react harshly with the jerks who always take money and don’t respond. Best of luck for all guys. Thanks !

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Neal Frankle, CFP ® May 21, 2014 at 12:23 AM

David – You make an excellent point. I agree. It’s just that once you’ve heard excuse after excuse, it’s time to get serious. But you are right, if there is a real problem, best to be respectful and work with the person. Thanks!

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Benjamin April 26, 2014 at 2:46 PM

I loaned a guy $500 so he wouldn’t get evicted. I normally don’t loan things but tried to help someone out and do a nice thing. He repaid me by giving me the bird and not paying for a month and a half. Always had some excuse. Thankfully I had had a promissory note signed and promptly turned him over to collections. Its sort off frustrating because it seems like the law favors the debtor rather than the creditor. They have sent letters and called him to no success. They will probably take him to court. Looking back he seems like he knows the ins and outs of the system and will probably find a way to weasel out. Learned a valuable lesson on this one.

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Neal Frankle, CFP ® April 28, 2014 at 5:10 AM

Sorry you are having this problem Benjamin. This might help Have you tried to sue the jerk?

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stefani March 12, 2014 at 12:07 PM

Hi Neal,

I loaned an EX $5,000 that he promised to repay with interest in 120 days. I wrote up the contract he stipulated the 120 days terms. of course we broke up, I asked him since we are no longer together you can repay me the $5,000 so i no longer have to deal with this. he says ok, ill see what i can do. this went on for about 5 months I still don’t have my money, he has never given me a date when i can expect my money, and just recently he claimed he would give me $2500 now and the other half later, i said fine sent him a payment request through my bank. he now claims its too much hassle to have to enroll for the service instead he wants to “drop a check in the mail”!?!?!?I know I’m not being unreasonable here. so I have had it, I’m ready to file a small claim. I’m just wondering whats the best way to proceed once I do that? I’ve done it before and I wasn’t able to collect. This time I want all the info I can get to ensure I do collect on this. please help!

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Neal Frankle, CFP ® March 20, 2014 at 12:10 AM

Sorry your ex is behaving this way. I would probably send him a certified letter saying that you are going to pursue legal remedies unless you receive a cashier’s check within 10 days of the date of the letter. If you have a lawyer can send this letter, it will be far more powerful. It might be worth spending a couple hundred bucks to put the fear of you-know-what in this bloke.

Does he have the money to pay you think?

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Joseph February 23, 2014 at 2:18 PM

girl fiend borrows money from her mom to help use out of debt her mom tells her to get me to sign a payment agreement and to hand over all the money to me,my girlfriend get the money spend it on some other thing then our debt then tells me cause i took care of her for 4 yrs she is going to pay off the mother but if i could pay the interest of the loan till she starts her new job. she got fired so for 3 yrs i paid the loan to go ahead we broke up her mom asked her how she was going to pay the loan she said not me but joe is a nice guy he will not screw you I told her I can help her till she is off her feet she move to another state . i was told the card was for her mom’s loan so i would put the min payment in 1 day the atm would not take the money i went in to the bank they told me i can not use someone else’s card i said it was for a loan payment they said it was for a checking account call the ex girlfriend that she need to start paying her mom back she told me not her problem that it is mine now

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Neal Frankle, CFP ® February 25, 2014 at 12:07 AM

So Joseph, what is the bottom line?

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candlz October 3, 2013 at 3:53 PM

Neal, my husband and I hired a guy to do some handyman/carpentry work. This was a handshake deal. We asked us to pay him a $1000. upfront, so that he knew we were not crooks. We asked him to work 5 days a week. He agreed and said I can even work 7 days a week. Well needless to say, we held up our end of the deal, him, no. Half a day here and there. His girlfriend covers for him in everything. From screening his calls to cashing his checks. We didn’t know this until we were ‘into it’. We divided up his $1000. into 2 $5oo.oo checks. I left the ‘pay to the order of’, blank, but in the memo spot I put down labor. His girlfriend filled her name into the pay to the order of and endorsed the check. If that legal? Second of all, the little amount of work he did was not worth $1000.00. Can we recoup half of the money? And do we have any recourse against her? What if he comes back and says he never got paid?

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Neal Frankle October 3, 2013 at 9:10 PM

I would try . Also, sounds like you might call the police on both of them because this might be fraud. What have you tried so far?

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K Hayes June 15, 2013 at 6:38 AM

Hi Neal, I live in Las Vegas and 2 years ago almost to the day June 9th 2011 I loaned my best friend over $3000 to pay off all her pay day loans because she lied and told me her husband was threatening to leave her and take her child which he never was. She agreed that she would pay me back 60 dollars every month until it was paid. In the 21 months that she has had to pay me she has only paid me $700 of the $3415. The money I gave her came out of my disability back pay. I fought for three and a half years with the help of Binder & Binder to get on permanent disability, after 33 surgeries in18 yrs my doctor finally said no you cannot ever work again, its too much, you need to be on permanant disability & stay home take care of yourself and with his help all the way thru I won. She knew my back pay was coming hecause she was my best friend of 20 yrs. I’m 37 & on disability, she knew how much I needed that money paid back. I’ve had 6 additional surgeries since I was put on disability and countless visits to the hosp. and she kept saying if I had the money I’d give it to you, she would never have the money she gambles everything away. The only reason I helped her was because she lied to me and told me her husband is going to take their daughter which he never was, I spoke to him, and he told me they would pay me every month. I don’t have it written but I have all the text messages saying I’ll pay you here and I can’t pay you this have to pay you this day etc,. I have everything going back 2 years I have where I asked her to put something in my account because I had $157 that was it and had to last me a month. I asked very nicely in a text and she came back and bit my head off like a black widow and then she said I want to start keeping track of what I still owe you. It took you TWO YRS to care? You should have been keeping track the whole damn time! I went into my credit union got a printout of exactly how much money I took out and how many times money was actually put back into a specific account so I have the proof in the two years she’s only paid me back $700 of the 3000 and we got into this huge fight because I asked her to provide me the names of the payday loan places and how much each one was individually and she said that’s not what I asked you why are you being so rude you always make it about you and whatever BS. She got mean. She asked so I said here’s what you paid me and here’s what you still owe me and I have two checks right on them it says loan. I have all the text messages & the receipts the two times they paid with a check. Here’s the thing she can’t pay me back but she can go buy a new car and throw a huge birthday party for her daughter and oh yeah they just bought a new house. Husband brings home 2 grand a week she brings home that much every two weeks and they can’t afford to pay me 60 dollars a month?  I’ve been told to go to small claims court to get my money and now she’s pregnant. I’ll never see my money if I don’t do it now. I need to know if I have all the text messages if I have the exact amount taken out of my account and she has the names and places of all the payday loan places with the exact amount each one that was paid that day, I’m on video on every one where she paid. I need to know with my text messages especially of her saying I know I should have paid you more over the last 2 years asking you to borrow money was the biggest mistake of my life, please tell me I have enough to prove that she owes me the money because I am on disability and she took complete advantage of that. Yes I got my back pay it wasn’t a whole lot of money I paid my parents first because they took me in and have been taking care of me I cannot take care of myself. then I had to go to the dentist pay 10 grand to have all my teeth pulled because I had an infection so bad to the bone it would have killed me in 10 days I also had to pay 3 grand for the anesthesiologist so the money did not go to shopping trips or new cars or anything else it went to things were absolutely necessary for me and she guilted me into giving her that money and now because I called her on the carpet she’s turned around and made it beyond personal. I do have psychiatric diseases I do have depression I do have anxiety to turn it around and just be mean to blame me? I have all the receipts she just put in $40 yesterday not 60 now she put it down to 40 I never agreed to that and I want my money. She is no longer my friend and she never will be again. So please tell me 2 take her to small claims court and get the money I desperately need for another oral surgery which I don’t have dental insurance to pay with, its all out of pocket. Thank you

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Linda February 26, 2013 at 12:53 PM

Hello,
I loaned a friend in the military 1762.5o, which he refuses to pay me back. I have notifies his Commanding officer and now he has been calling and texting me saying that his job wants a signature and notification that he owes me the money. I’ve kept all the text messages of him saying he will pay me back and copies of the money grams that were sent to him. Will that be enough??

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Neal Frankle February 27, 2013 at 2:29 PM

Linda. I think it should be but it will depend on the person’s CO.

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CINDY November 21, 2012 at 11:38 AM

hi neal i had a room mate ( my cousins wife he had passed away rented a 2 bedroom & split bills. she was always late with her 1/2 rent bills but thats not the problem. she made charges on 4 of my credit cards for $5000.00
i took her to small claims court & won the case in may but she still has not made any payments. can i sue her again for all the interest & late fees (35$ a month per card ) it totols over 5 grand. now i find out her wealthy motherassed away ( s telling people not to tell me ) causees been running from me she is to inheret 1/3 of 1.3 million w do i get my money please help thank you happy thanksgiving

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Neal Frankle November 21, 2012 at 10:30 PM

I will have to research this – which I will – and then write a post about it. But I do know from my own experience if you have a judgement and the other party doesn’t comply you should be able to place a lien on the property. As I said, stay tuned. I w/look into this…..

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mdavis31 November 15, 2012 at 1:57 AM

Hi Neal,

I was dating/slash helping out a guy for about 5 1/2 months. I paid for his airfare to move from FL to NY, he stayed at my house for that duration. He did not have much clothes, so I purchased him new clothes (on credit), particulary for job interviews and work clothes. There were other expenses such as phone bills and other utilitiy expenses, and in total everything added up to over $3,000. He verbally agreed to pay me back when he started working out of his first paycheck. He only had his 1st job for two weeks, but he gave me $300. I have a banking statement where I made a deposit of $300.00 he gave me out of his first paycheck that went towards him paying me back, but he fradulently took my debit card,withdrew the money from a local ATM machine (which I also have documented on my banking statement). Unfortunately I only have a contract that he signed for a smaller portion of the amount owed at $465. He refuses to sign any other additional contracts for the total amount owed. I have receipts that back up my claims in total. Also I plan to obtain a notorized letter from my mom (as landlord of the house) that the guy was living there while I was paying rent and utilities. I was wondering if I have a case with the receipts for the expenses incurred, as well as obtaining a notrized letter?

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Neal Frankle November 17, 2012 at 11:13 PM

Charlene, Sorry you had that experience. You may have a case but you don’t want to waste time and money on this because the amount is relatively small. Check out this post on using Small Claims court to collect money owed and see if it helps. Then, chalk it up to experience and never mix love and money again my friend! Best of luck!

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jillybean November 13, 2012 at 5:16 AM

Hello Neal. My husband and I find ourselves with financial difficulty due to his disability. I loaned a “friend” $3000 about 8 years ago, which she promised to repay within 60 days. After she cashed the check, all contact stopped. I know she also suckered many others into loaning her money at that time. I just learned she spent time in jail in 2012 for writing bad checks close to $10K, and must make restitution. I am angry now that she only got worse with her spending habits and screwed a lot of people. I want my money. She nor her husband will answer phone calls or respond to letters. What is the best way to pursue this? She is in PA and we are in ME, otherwise I’d be knocking down her door. I know my chances are slim, but just the thought of her looking over her shoulder thinking I am pursuing this may give me satisfaction. Can I at least put a lien on her property or something? Maybe someday they will sell their home and I will have that judgment. Whaddya think? Thanks.

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Neal Frankle November 14, 2012 at 1:47 AM

Jillybean, I am sorry that your kindness has been repaid with such terrible behavior. The best situation would be for you to walk away and move on if possible. You can pursue it but you will incur more costs and frustration. And you still may not get anything in return.

If you want to pursue it you can look into suing in small claims court but I don’t know how that is done if you are in another state. This

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jillybean November 14, 2012 at 4:43 AM

Thank you Neal, figured it was a lost cause. I will write her husband one more time now that I know she was in jail and perhaps he will be shamed into paying up, but he let her sit in jail without bailing her out, so probably won’t happen. We were tight friends once, maybe he will have mercy. Thanks again, and will let you know if any progress or response happens.

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Neal Frankle November 14, 2012 at 4:55 AM

I’ve had to go thru this myself a time or two. My experience is that I’ve already lost the money – why lose my serenity too? I am sorry this happened but I suggest you not loan to friends again – ever again – unless you can afford to lose it. That’s been my strategy.

Keep me in the loop and good luck…

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SoS November 8, 2012 at 7:30 AM

I wish I had the problems of the folks above. $1,000 here – $2,000 there. I sold my business and the buyer took a personal loan from me to do it. She ended up just walking away – owing me $50,000 and leaving me with her rent and bills. I need the “right” collection agency for this – that’s what I’m trying to find.

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kat November 5, 2012 at 11:50 AM

also, I do still have his storage key, do you think if I just go to his storage and get whatever to secure if he doesn’t pay me back. will that illegal? will I be in trouble for that?

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kat November 5, 2012 at 11:46 AM

hi Neal, I need help, my friend got arrested Feb 2012, and just got out on Oct. 2012. when he in jail, I was the one pay for his lawyer fees and book money also storage fees. but the problems there is not paper agreement between us due to he is in jail. Now after he is out, he just did not mention anything about to pay back. also we got in to big arugement, which will not going to talk in person anymore. but most of the fees mentioned above is from my credit card, but some are cash. will you think is okay for me to file a claim base on what I have in hand? what should I do? please help!!!

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Neal Frankle November 6, 2012 at 2:39 AM

Kat, I am sorry to hear about this. It may be possible to use Small Claims Court. I personally would not waste much time other than using Small Claims. I do not think it would be wise to simply take what he has in storage. Also, consider if you really want to have any business with this person. You might want to just cut your losses and move on.

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Armando October 29, 2012 at 1:04 PM

This was an excellent article to read, I felt very empowered by it. Sadly this has happened to my “emotional” behind twice already by (2) different friends, both named Michael…oddly enough. One owes me $200 from (2) years ago and one owes me $455.00 going on (6) months now. The latter I had sign a promissory note that listed his truck as collateral should he be unable to pay me back. That note was also notarized.
I have a question in regards to the $200 loan that is owed to me. He lives in Tampa, FL now. When I loaned him the money we were both living in Palm Beach County, FL. Two years later and he still lives in Tampa and I live in Colorado Springs, CO.
Where should I find an attorney to write the letter for me, which city is best to do this from?
Any help you can give me would be greatly appreciated. I am sending a copy to your FaceBook as well.
Thanks again for all your informative tools, you’ve given me the boost I need to stop playing Mr. Nice Guy and get my money back.
warm regards
Armando Diaz

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Neal Frankle October 30, 2012 at 11:29 AM

Armand. Thanks for your kind words and sharing your story. I am sorry that your friends let you down. That sucks. I like that you are going to stop playing Mr Nice guy. I would have a policy of no more loans to friends. Have them go to others or even turn to Lending Club. But to your question – I fear that the cost of having a letter written by an attorney would be more than the possible return you will get if your friends pay up. This strategy works but I think it works better with larger amounts. Still, you can try to contact Legalzoom.com . Either way, don’t despair. If you learn the lesson and don’t fall for this trap again it will be worth far more to you than the $200. On the note that is collateralize with the truck, have you placed a lien on the car?

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Armando Diaz October 30, 2012 at 2:13 PM

Neal! Thanks for the prompt response! Really made my day. To answer your question… NO I have not placed a lien on his truck. The truck was a gift to him from his grandfather. To be honest I think he’s driving around in it with fake plates and no insurance. I’m not even sure he has transferred the title over and I do know for sure he doesn’t have any insurance on it. He carries around this personal injury insurance for himself. That’s all I know. The truck is a 1994 Dodge.

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bill canada October 28, 2012 at 2:49 PM

i get a kick out of all the sites that tell delinquents how to avoid collection and how to charge the collector with harassment . this makes me sick ! Pay ur bills and this wouldn’t happen . I personally have given up on collecting all the personal loans owed to me AND will spend my $ on revenge . I will drive them completely nuts without them knowing where it is coming from . SO if u owe me $ u will wish a collection agency was handling this when i am done . good luck losers :)

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Roxanne August 30, 2012 at 4:09 AM

I have a car loan out to my sons roommate- he sold the car and took my loan money for the car and spent most of it on his credit card bills ect… Stating he did not know it was to be repaid when he sold the car. He lives in Arizona, I live in Minnesota. If I went to small claims court what state do I file in? Mn and Az have different limits for small claims. My son and he are no longer roommates. Give me some advise on how to handle this. Thanks

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Azizi Ali August 19, 2012 at 8:06 PM

These are excellent ideas on collecting debts, Neal. I’m happy to read that it is easy (relatively speaking of course) to collect debts in the US. In Malaysia where I live, it takes forever and a day to do so even when you go to court.

As a result, I came up with the perfect loan plan – do not lend money! Firstly, it’s not your job to lend money. Secondly, if you really want to help, just give, don’t lend.

By treating the money as a gift, it’ll save you from the burden of getting the money back and your friend from trying to find the money to repay you. Of course, you only give what you can afford, and not necessarily what he is asking for. The bonus of doing this is that both of you will remain as friends.

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Brett June 3, 2012 at 7:59 PM

Mr. Neal, I find myself in a situation that pertains to what you have broken down on this page. I lent a friend a total of $2000 so that he could further pursue a business venture of his. This was done in a personal manner and was no way an investment through his company. He needed the capital and I lent it to him on a personal level. I had him e-mail me a contract stating the amount and the said due date for my money to be returned to me. It has been several months now past this date. He has made several promissory dates based on certain monies that were to be coming to him that he would then pay me back on those dates. Contact on his end has decreased and I have not heard from for over a week now. I have several e-mails and text messages along with the wire transfer receipts for the money that I sent him regarding this matter. Seeing how the non formal way of handling this manner is not working, what do you suggest I do from here? Do I have enough backing on my end to take it to court? Any advice would be greatly appreciated.

P.S.- There was to be interest paid on this money as well and is that something that I should not concentrate on? Or just worry about the principle amount?

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Neal Frankle June 4, 2012 at 7:27 AM

I am not an attorney but I believe you have enough to go to small claims court. I would ask for principal PLUS interest. Read this on small claims court.

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Dave March 28, 2012 at 3:44 AM

Hey Neal, I really need your advice. I’m a former college student who quit the university on my second year when I got dismissed, and went to pursue something different. I didn’t apply for health insurance, or lived in the housing when I left, yet they still charge me for student service fee, housing fee, health insurance fee and campus based fee, and it’s total up to 7k. I already canceled my housing when I left but they didn’t notify me that I have to write a letter to remove me from the contract. I don’t if they still charge me for the terms when I wasn’t living there. They’re just trying to make money off of me, do you think it’s wrong for them to do this even though I didn’t use these? They even referred to the collection agency to force me, but I got nothing. I don’t even want to pay for that crap that I didn’t apply for. Mark what is your advice? What can I do to drop this? Have you ever been in this situation?

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Neal Frankle March 28, 2012 at 6:06 AM

Dave,

You have to prove to them that you notified them of your status change. If you can not prove that you gave them written notice, you will have your work cut out for you. I would simply go talk to the housing department. Be nice. Never display anger. Politely ask to speak to the manager and work your way up to each higher level at the school until you get to the Dean. I am sure they will want to be fair. Let me know how it goes.

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