When you are unable to pay off a debt, and cannot work out a payment arrangement with a creditor, the creditor will most likely turn your bill over to a collection agency and report the delinquency to a credit bureau. This generally happens three months or so after you default. Debts likely to be turned over to a collection agency are those such as credit card debts, telephone service debts, and other debts like medical, utility, and car payment debts.
If Your Debt Goes to Collection
Understanding how collection agencies operate can help you know how to respond when you are contacted by them, in terms of negotiating a payment plan and avoiding harassment by them, which can be very stressful. For example, your debt may be either assigned or sold to the collection agency. If it is assigned, it is still owned by the creditor, and the collection agency cannot make decisions concerning the debt – such as taking a smaller amount or suing – without authorization from the creditor. If the debt is sold outright to the collection agency, it is purchased debt and no longer belongs to the original creditor at all.
Collection agencies move quickly. As soon as they receive your debt from the creditor, you will hear from them. These agencies know that the sooner they pursue the debt, the better their chances of collecting it. And they are very resourceful when it comes to locating people. Collection agents get paid for collecting debts, sometimes by commission. This means that the individual collector who calls you may be highly motivated to collect the debt, and may be stressed out, rude, and possibly have little regard for what the law allows.
When a collection agency has an assigned debt, they generally keep anywhere from 25 to 60 percent of what they collect. Often, their fee is higher for older debts. They may charge the original creditor per letter or phone call, giving them an incentive to contact you frequently. A collection agency may carry thousands of delinquent accounts and must prioritize which ones to pursue.
Another thing to realize about collection agencies is that they may not have accurate information. If your debt is very old, you may find yourself dealing with an agency that has bought a bundle of debts at a very low cost. This means that the collector may not possess any of the credit documents involved in the original transaction, and may have nothing but a computer printout of the debt information. Sometimes the debt has been bought from another debt collector – not the original creditor. This increases the chances that the collector may not have much, or accurate, information about the debt.
Make sure that information a collection agency has about your debt is correct, and make arrangements to get the debt paid off. Even if you can’t prevent damage to your credit, having the debt showing as paid off is much better than letting it remain outstanding. The best way to avoid having to deal with collection agencies is to avoid having your debt be turned over to them in the first place. If you do find yourself in a situation where you must pay a large debt quickly that you can’t afford, a title loan from a reputable company such as Embassy Loans is an excellent solution that can save your credit and help you get back on track.