If you have an outstanding amount owed, or a bill that hasn’t been paid, there’s a good chance you’ve encountered an agent from a collections agency. And if you haven’t, you may be wondering, what it is that a collections agency does with regards to debt recovery?
This article will explain the role of a collection agency, and how it goes about collecting past due balances on accounts so that you have a better understanding on what you are up against or possibly facing.
What Is A Collection Agency?
A collection agency is a third party company, that specializes in collecting money that is owed from a borrower to a lender. Most often, a collection agency is referred to as a debt collector and at times is the middleman between the borrower and lender.
What Do They Do?
A debt collector, or collection agency, will do whatever it takes to be in contact with the borrowing party so that it can either settle a debt or collect it.
It isn’t uncommon, that a collections agency will renegotiate the total amount due so that each party is happy with the process. The borrower gets something instead of nothing, and the lender pays what it can afford rather than be cleaned out by the agency.
Some agencies buy debt, which can be bought for real cheap depending on the age of the account. The older the debt, the harder it is to collect, which means it will cost the borrower more money to obtain.
On other debts, an agency may pay pennies on the dollar to free up the debt but then go after the lender to make a profit. For instance, a $2000 balance may only cost the collections agency $60-$80 to buy. The more the agency collects, the more it profits, which makes the debt collecting industry a big business.
How Do The Agents Collect?
Debt collectors are very persistent and some will even hire private detectives to gain information on the party that owes. Some agencies will take the party that owes to court and try to get a settlement to garnish wages.
However, it is important to note, that a debt collector can’t take from a check or bank account unless there is a court order.
It is quite common, for a collections agency to gain information from the borrower or some other method and reach out to the lender by phone call or mail.
The Final Words:
As you can see, collection agencies make money by being persistent and collecting money that is owed to the borrower. They are either paid to collect something, renegotiate a past due balance, or they buy the debt, therefore, trying to maximize their profits through collecting as much as possible.
Each state has a statute of limitations and each state varies with laws. If you think you owe the debt, it is important that you check with how your state operates with regards to debt collection.
Collecting debt is a big money industry, that will continue to thrive for as long as more people are getting into debt. Each year, a study indicates that more people are living in debt, which is great for the agencies that live off it. For the consumer or lender, it’s bad news, as this often means continuous phone calls and repayment request letters in the mail.
Tip: Most debt collectors will negotiate because it’s in the best of each party’s interest to do so. If you can settle the debt by negotiating a lower sum, then you may benefit in the long run by doing so—so that your credit score isn’t negatively impacted.