Many imagine a hard-hearted, melodramatic villain who threatens to cast widows and orphans into the street because the rent is overdue when they think of the traditional debt collector.
It is tempting to paint these people as evil monsters out to ruin lives, and historically some of their actions have not been admirable, but it is vital to remember that no one is compelled to borrow money. If you have debt, it is because you choose to borrow money. Your agreement to repay the loan or credit line was a requirement set forth by your lender.
A debt collector is merely attempting to recover the money you are morally and legally required to pay your creditors. Your creditors do have a right to their money. It’s like what that adage says, don’t shoot the messenger.
Although some work independently, debt collectors frequently work for debt-collection firms. Some also practice law. These organizations occasionally serve as middlemen, collecting customers' past-due debts (at least 60 days overdue) and sending the money to the original creditor.
How does a collection agency contract take effect?
In general, the debt collection process is divided into three stages:
1. Six months of delinquency
You typically engage with your creditor's internal collector, a first-party agency, for the first six months of your delinquency. Since there is no intermediary involved and your lender still has an interest in keeping a good connection with you, this can be the perfect opportunity to try to settle your loan.
2. Delinquency after six months
When your lender determines you will not pay back your loan, it will be transferred to an outside entity, referred to as a third-party agency. The original creditor is still the loan owner and is still owed money from it. Your creditor will pay the third-party agency a commission, which may take the form of a fee or a percentage of the total amount outstanding if it successfully recovers all or part of the debt.
3. Debt is sold to a collection firm
The final step involves your original creditor writing off your debt and selling it to an outside collection firm, often known as a debt buyer, frequently for pennies on the dollar. There is no longer a creditor involved. The collection agency is still working to recover as much debt as possible to make money on its purchase.
What happens when your debt is in collections?
When a loan is in collections, it typically means that the original creditor has given the debt to a third party for collection purposes. Credit card debt, mortgages, auto loans, and student loans are some of the debts that can be given to a collection agency.
Debt collectors contact delinquent debtors via letters and phone calls to persuade them to make good on their debt. In addition, debt collectors use computer software and private investigators to conduct additional research when they cannot contact the debtor using the information provided by the initial creditor.
Searches for a debtor's assets, such as bank and brokerage accounts, can also be done to determine their ability to pay back the loan. In addition, collectors may notify credit bureaus of unpaid debts to persuade customers to make payments since outstanding debts can significantly lower a customer's credit score.
An honest, fair, and law-abiding collector will always act following the law. After you exercise your legal right to request written confirmation of the debt you have been contacted about, the debt collector will stop all collection efforts. They will send you a written notice stating the amount due, the company you owe the debt to, and instructions for payment.
What can you do?
Avoid making snap judgments when interacting with a debt collector since you can worsen things. Instead, follow these steps:
You are entitled to debt validation and verification letters; take advantage of them.
The debt collector must send you a validation letter within five days of the initial contact. Examine this document to understand the history and total amount of your deb
Check your records, especially your credit reports, to confirm the account's specifics. Request a debt verification letter if you need more details.
2. Know your rights
You are not as helpless as you think; you are protected under the Fair Debt Collection Practices Act. Depending on where you live, there may also be state laws that protect your interest as the borrower.
So, learn about it. Doing so makes you aware of what collectors are not permitted to do, such as phoning you at obscene hours, threatening to have you arrested, or using profanity.
When your debt is in collections, you can either pay it off or challenge it if it's incorrect.
You can give an agreement to pay debt. No matter which option you select, avoid granting the debt collector access to your bank account by giving them your debit card information or enabling automatic withdrawals. Instead, get the agreement in writing so you can hold the debt collector responsible if you agree to a payment schedule or settle the debt for less than is owed.
You can contest if the debt is not yours or you have already paid it off. The agency must halt collection efforts and launch an investigation. It cannot add the problem to your credit reports during this time. If the debt is valid, the debt collector will mail you the bill's supporting documentation. If not, it will stop making an effort to collect the debt.
To Wrap It Up
Debt collection is a legitimate and respectable industry. When a debt collector contacts you, it does not signify the start of an abusive relationship. On the contrary, many debt collectors are sincere people who only try to do their jobs. In fact, they can even help you repay or settle your outstanding balance. Whether it entails a single sizable payment, numerous smaller ones spread out over time, or even a lesser settlement, they will work with you to negotiate an agreement to settle debt.
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