Home & Mortgage
When you miss a payment to a creditor, they will follow a series of steps in an attempt to get the money from you. It usually starts out with a polite reminder notice, then perhaps a threat to turn the debt over to a collection agency. At some point the creditor will actually sell your debt to a collections company. Individual creditors dont have the resources to pursue bad debts, whereas a collections agency specializes in chasing down defaulters.
The collection agency never pays the full amount of the debt, because they run the risk of never getting any money out of you. Often the creditor will sell the debt for as little as half of what you owe them, just to be rid of the problem and recoup at least some of their outlay. They will certainly report you to the credit reporting agency, leaving you with a black mark on your credit history for the next seven years.
If you receive a notice from a collection agent, its important to act immediately, in the hope that you can short circuit this process before the debt is sold to the collection agent. This "writing off" of the debt doesnt usually happen immediately, so you hopefully have some time to act before its too late.
Always contact the creditor at this point, not the collection agency. Try and work out a solution to clear the debt that you owe them. If you can pay it immediately or at least fairly quickly, they will often remove the mark on your credit history which says "gone to collection". This is essential if you want to repair your credit.
Not all creditors will help you out, however, so then you need to deal with the collection agent. At this point things cant get much worse from your point of view - youve already got the worst possible mark on your credit history for this debt. So you can take some time to work out whats the best way for you to deal with the situation.
Collection agencies have a tendency to be aggressive in their approaches to you, demanding instant payment of the debt in full. They often say theyll pursue you with legal action if you dont comply. What you need to remember is that the collection agency has probably only paid half the face value of your debt, so for them, any payment above half of the default amount is profit.
This gives you the opportunity to perhaps sort out some sort of deal. If you can pay more than half of the debt immediately, then offer to do so. Obviously the more you can pay the more receptive theyll be to the idea. Often theyll be glad to know theyve made the profit without a lot of work, theyll accept or negotiate just a little, so that they can close the file and take their profit with the minimum of effort.
Its always best to sort out the problem with your creditor if you can, but if its too late, always try and negotiate a lower payment amount with the collection agency. It might not work, but its certainly worth a try. At the very least, if you end up having to pay the full amount, make sure you work out a plan for repayments that you can afford. The collection agency may still give you a hard time, but as long as they feel confident theyre going to get their money, they will probably agree.
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