If you have ever experienced a financial crisis or have gotten behind on payments to a creditor, you have probably dealt with a collection agency. A collection agency is a company that is hired by your credit card company to collect the debt you owe on your credit card. Collection agencies use different tactics to collect debt but a collection agency can also be more flexible in arranging for repayment of that debt. However, once your credit card account is turned over to a collection agency, you will likely begin to feel the impact, for example:
- Your credit rating will drop
- Obtaining insurance at a reasonable rate will be difficult
- You may not qualify for a low rate on your cell phone or cable service
Below we will explain collection agencies in more detail and why more credit card companies are turning to these agencies to collect bad debts.
Debts Turned Over to a Collection Agency
If you do not pay your credit card payment by the due date, your credit card company or bank will probably call you to find out why the payment was not made. If you ignore the telephone calls, the next step is for the credit card company to send you written notice demanding that you make your missed payments. During this time, the credit card company will add interest and late fees for every missed payment, increasing the amount you owe the credit card company. Typically, the credit card company will continue to send you letters and call you in an attempt to collect the bad debt – for up to six months.
After six months, accounts get turned over to a third-party collection agency. The collection agency will immediately begin collection efforts on behalf of the credit card company. The collection agency is typically paid a contingency fee for collecting bad debts (i.e. the collection agency is not paid unless you pay); therefore, the agency is highly motivated to get you to pay. This is why a collection agency is far more aggressive in collecting the debt than your credit card company was.
The Difference in Collection Efforts
As discussed above, a collection agency is usually more motivated to collect a bad debt because they want to be paid. This results in collection agencies using aggressive and even threatening tactics to force customers to make payments or payment arrangements. These efforts include telephone calls (at home and even at your place of employment), threatening letters and some even send agents to your home.
Collection agencies are relentless when trying to collect a bad debt. They will call in the morning and then again in the afternoon. They will continue to call until you give up and answer the phone. Often collection agents will threaten legal action to scare you into making a payment. The Fair Debt Collection Practices Act was enacted to protect consumers by prohibiting debt collectors from using abusive, unfair, or deceptive practices to collect debts from individuals. Even though the FDCPA is very clear about what a collection agency may and may not do when trying to collect a debt, it can be difficult, time-consuming and even costly to prove that a collection agency is violating the provisions contained within the Act. In most instances, the only way to stop a collection agency is to pay the debt or file a bankruptcy.
Collection Agencies vs. Creditors
As you can see, dealing with a collection agency is far different from dealing with the credit card company directly. Ignoring a collection agency will not make it go away; in fact, it may increase their efforts to collect the debt.
However, there are some advantages to dealing with a collection agency rather than dealing directly with a creditor. For instance, a collection agency typically has more flexible repayment options. If you are able to pay something toward the debt, discuss your options with the collection agency rather than ignoring the situation. If you do agree to a repayment plan, insist that the collection agency provides written confirmation of the amount to be paid, the terms of repayment and any other relevant information. Keep copies of every payment you send to the collection agency so that you have an accurate accounting should any discrepancies arise.
Collection Agencies Ruin Your Credit Rating
In addition to your credit card company reporting your late payments and charged off debt, collection agencies will also report the collection efforts to the credit reporting agencies. All of these actions harm your credit rating and lower your credit score.
If you are suffering from a financial crisis and battling aggressive and abusive collection agencies, filing bankruptcy may be your solution. Download our Debt Solutions 101 eBook to explore your personal bankruptcy options or if you are ready to talk to someone, request a free bankruptcy consultation with one of our experienced bankruptcy attorneys. We can help you solve your debt problems to give you a fresh start to rebuild and recover financially.