Unpaid debts tag along with unprecedented levels of stress and complexities. You always anticipate reminding a phone call or an email from the debt collection agency. At such a point, it’s essential to know how these agencies work, especially if it’s the first time that you’ve fallen behind on your bills.
This blog will shed light on the basic concept of debt collection agencies. Later, it discusses their workings and the roadmap they follow. By the end, you will have complete information on how to deal with these agencies.
Also, as a consumer, it’s best to know how debt collectors operate. So let’s begin:
What is a debt collection agency?
A debt collection agency specializes in collecting outstanding balance. They serve the original creditor who can’t get their arrears paid back. Delinquent debts can be at least 60 days past due or more.
Business owners have to juggle around with a lot of things. The collection of unpaid invoices is also one of them. They can handover this task to collection agencies. It’s important because having cash at hand enables the business to flourish in the market. Current services of commercial debt repair Dallas can serve a good example of how to work it out.
How do collection agencies work?
Their primary purpose is to get the borrowers to pay their overdue loans. They usually work in one of the two ways:
- The original creditor sells your debt to the agency. It is because the amount you are paying to them is insufficient. Your initial contract with the creditor includes a clause that allows them to sell your debt after a prolonged default on your account. Original creditor sells this debt at a reduced amount.
As a result of this trade, the collection agency is now in charge of your debt. They make a profit by collecting the entire amount from you.
- The original creditor is the legal owner of the debt. They contact the third party to collect the debt. The creditor pays the agency a commission off of the debt amount, which varies from 25 to 45 percent.
What can a debt collector do?
As per the analysis of the Federal Trade Commission, debt collection agencies are the companies that receive a high number of complaints against them.
It’s natural to feel frustrated when you receive constant reminders from the collection agency. However, keep in mind that debt collection agencies do not have any extra-legal authority than the creditors. They use different means to contact the debtor. These include emails, phone calls, letters, and text messages.
The agencies are bound legal restrictions over the amount of time they can sue the debtors. It depends on your state’s constitutional limitations. Usually, a debt collector has to wait for three to six years before they can sue the debtor.
What are the prerequisites for debt collection?
In its first bill, the agency must notify you that you have 30 days to ask for validation of the debt. It’s the proof that you owe that debt. Besides this, the collection agency should also stick by the Fair Debt Collection Practices Act. It includes details on how many times they can reach out to you and what modes of contact are allowed.
Debt collectors can only call between 8 a.m. and 9 p.m. your local hours. Although they have the permission to call defaulters who keep dodging their calls, these should not be back-to-back. It could lead to annoyance and conflict.
How to avoid debt collection?
The financial health of your business is essential to achieve your targets. And this comes about by managing the debts effectively. A handful of steps you can take to steer clear of those hounding collection calls. A few actions you can take are:
- Set an “Autopay” schedule for your monthly bills in your bank account. You will not forget paying the bills anymore.
- Plan in advance on how to cover auto-debit costs. You can seek payment assistance for services like medical as they increase the debts.
In case you are a creditor, you should also learn about debt collection agencies. So you can seek their assistance to maintain the financial health of your company. Check out the article, Best Ways to Clean Up Business Credit Score, for further insight.
What should I do if a collection agency contacts me?
For starters, do not ignore the reminders. The company will take further action if you do not respond appropriately. Instead, have a conversation. Discuss your current financial status. Eventually, you will agree upon an amount which you have to pay periodically. Make sure that the amount fixed is one that you can realistically afford.
Note that there can be drastic consequences if you do not take the collection calls seriously. Your credit score will significantly drop if the collection appears on your financial report. You will have trouble getting credit cards and loans in the future. Hence, you must work hard to weed out all pending payments. Apart from all other benefits, it gives you the confidence to proceed in the market.
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