When it comes to debt collections, misinformation spreads faster than facts. Whether you are a borrower facing collection calls or a business managing overdue accounts, understanding the reality behind common debt collection myths is crucial for making informed decisions and protecting your rights.
With evolving regulations and an expanding debt collections market, separating myth from truth is more important than ever. Let’s clear up the most persistent myths that continue to mislead people about the debt collection process.
Myth #1: Ignoring debt collectors makes them go away
It is a common belief that if you ignore debt collectors, they will eventually stop contacting you. However, this approach can lead to increased interest, penalties, and even legal action. Ignoring communications does not erase the debt; it often escalates the situation, potentially resulting in lawsuits. Engaging with collectors to discuss repayment options and understanding your options under debt collection rules in India is a more proactive and beneficial strategy.
Myth #2: Debt collectors can call you anytime
A common misconception is that debt collectors can contact borrowers at any hour. In fact, RBI guidelines clearly restrict debt collection calls to between 8:00 AM and 7:00 PM. Knowing your rights empowers you to set clear boundaries and take appropriate action if these rules are violated.
Myth #3: Debt collectors can garnish wages without legal action
Debt collectors cannot take money directly from your salary without a court order. Wage garnishment (salary deduction) can only happen after a lender files a case and a court gives a judgment against you. If someone threatens to deduct your salary without this legal process, it is illegal. Know your rights and seek legal help if needed.
Myth #4: All debt collectors are aggressive and unethical
While some collectors may use high-pressure tactics, debt collectors are bound by law to operate within legal and ethical boundaries. Reputable agencies prioritize respectful communication and work with debtors to find manageable repayment solutions. Painting all collectors with the same brush can hinder productive interactions and delay debt resolution. It is important to assess each situation individually and report any misconduct to the appropriate authorities.
Myth #5: Paying off debt removes it from your credit report immediately
Many believe that once a loan is paid off, it vanishes from their credit report. In reality, credit bureaus in India may retain account records for up to seven years from the first default. While the status changes to “closed” or “paid,” the account history stays visible. The upside? A paid loan looks far better than an unpaid one and helps rebuild your credit score over time. Stay consistent with good financial habits—timely payments and low credit use—to boost your credit health steadily and positively.
Myth #6: Debt collection is only for large debts
Another popular myth is that collectors only go after large debts. The reality is that agencies within the debt collections market pursue all unpaid amounts—₹500 or ₹50,000. Small dues can be bundled and sold to agencies, making them more likely to be recovered. Ignoring them can lead to interest, penalties, and a hit on your credit score, affecting your chances of getting loans, or credit cards. Always clear all dues—big or small—to stay financially secure.
Myth #7: Debt collection is a scam
Not all debt collection is fraudulent. While scams do happen – often using threats, asking for payment via gift cards, or refusing to provide written proof, they are not a norm. Authorised collectors follow strict rules. A genuine collector will:
- Provide their name, agency details, and the debt origin
- Offer written communication about the debt
- Respect your rights and privacy
- Never threaten you with jail time or immediate legal action without due process
Always verify the collector’s identity via official channels or the original lender. Stay alert but not fearful—being cautious helps you spot scams without ignoring real obligations.
Myth #8: Bankruptcy will solve all my debt problems instantly
While bankruptcy can provide debt relief, it is not a magic solution and comes with long-term consequences. The process can take months, harm your credit score for 7-10 years, and may lead to loss of assets. It also involves high legal and court fees. Plus, some debts like student loans or taxes may not be cleared. For borrowers, it is important to know that bankruptcy is a serious step with lasting effects.
Final words
Understanding the reality behind these common debt collection myths is vital for anyone navigating financial challenges. As the debt collections market grows and regulations become clearer, staying informed helps both borrowers and businesses manage collections more effectively.
By knowing the debt collections rules in India, you protect yourself from misinformation, unethical practices, and poor financial decisions.
FAQs
1. What happens if I ignore debt collection calls?
Ignoring debt collection calls does not make the debt go away. It can lead to increased interest, legal action, or a court judgment. Instead of avoiding collectors, it is better to communicate and explore repayment options.
2. Are debt collectors allowed to call me at any time of the day?
No. As per debt collection rules in India, collectors can only contact you between 8:00 AM and 7:00 PM.
3. Will settling a debt improve my credit score?
It can improve the appearance of your credit report, especially if the status changes to “paid,” but the impact varies based on your full credit history.
4. Does paying off debt remove it from my credit report immediately?
Not immediately. Even after repayment, the debt stays on your credit report for up to seven years from the first default date. However, its status will change to “paid” or “closed,” which positively impacts your credit score over time.
