Debt can happen to anyone. With rent, credit cards, car payments, and other bills, it’s very easy to outpace your income. When you first miss payments, the creditor themselves will attempt to collect from you. They will send letters and call you frequently. Should your debt continue to go unpaid, you may eventually be called by a third party. This will be a collection agency. Before you engage with a collection agency, it’s important to understand who they are, what they want, and what your rights are.
What Is a Collection Agency?
A collection agency is a company that earns its profits by collecting debt that is past due. They can either buy debt from original creditors or act as agents for hire on the behalf of the original creditor. Collection agencies are known for being much more aggressive in their collection attempts than lenders are. Usually, if a collection agency is after a debt you owe, they will call you everyday and use other tactics that are intended to wear you down until you feel like paying the debt is the only way you will get another moment of peace.
How Does a Debt End Up in Collections?
Debt ends up in collections after it goes unpaid for a certain amount of time. The exact timeframe before this happens varies depending on the type of debt it is. Generally, you can expect the following timeline for debt to go to collections:
● Credit cards and personal loans: 90 to 180 days of missed payments.
● Utility and phone bills: Often the quickest to go to collections. Usually under 90 days of missed payments.
● Medical bills and other services: Varies widely, but typically after several months of non-payment
Once your debt has gone unpaid for the above-mentioned period, your lender will not want to waste their own resources on collecting the debt. This is when they call a collection agency. The collection agency may just be hired to collect the debt, but it is more common that the debt is sold to a collection agency. This allows the original lender to recoup some of their money and not have to deal with debt at all going forward.
How Collection Agencies Try to Collect Debts
Collection agencies use a number of different tactics to collect debt. These include:
● Phone calls: This may seem innocuous, but they will often call every day, making you feel harassed.
● Letters and emails: These are often marked as “last chance” or “final notice” to create a sense of urgency.
● Credit reporting: They will report missed payments to impact your credit report.
● Payment negotiations: They may be willing to negotiate a lower sum or a new payment schedule.
● Legal Action: If debt continues to go unpaid, they may file a lawsuit against you.
As you can see, collection agencies are experts when it comes to getting people to pay. They are tenacious and do not give up easily.
What Rights Do Consumers Have?
Luckily, consumers do have rights to protect them from overly aggressive collection tactics. These are primarily provided by the Fair Debt Collection Practices Act (FDCPA). This law states that collection agencies cannot:
● Harass or threaten consumers
● Call at prohibited times
● Use deceptive or misleading statements
● Contact consumers at work after being told not to
Additionally, consumers have the right to:
● Request debt validation
● Dispute inaccurate information
● Request certain communications in writing
● Report unlawful collection practices
It is important that you know your rights so that you can report collection agencies that are not following the law.
How Collections Can Affect Your Credit
Having an account go to collections will seriously damage your credit. When the account goes to collections, you can expect a 50-100 point drop in your credit score. Additionally, the account will be added to your credit report as a derogatory mark. The account will stay on your report for 7 years, which will make it difficult to get other lenders to work with you in the future .It should be noted that paying the debt off will not reverse the effect it has had on your credit.
When Collection Debt May Signal a Bigger Financial Problem
Usually, when you have multiple accounts in collections, it is a sign that you have a large financial problem. At this point, it will feel like creditors are constantly harassing you. If this describes you, it is worth considering bankruptcy as a solution. This will allow you to rid yourself of debt and begin to rebuild your financial situation. However, if you want to go this route, it’s imperative that you hire a bankruptcy lawyer to represent you. They will ensure that you are treated fairly and that your bankruptcy is successful.
Also Read: Optimizing Debt Collection: Maximizing Recovery Rates with Debt Recovery Services
