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How Debt Collection Works

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How Debt Collection Works

(Photo : Towfiqu Barbhuiya via Unsplash)

Many Americans presently suffer from immense credit card debts. If you've ever had an old debt having an outstanding balance, you might have already had a call from a debt collection agency. If you haven't, there are chances that you'll hear from them soon. It can be stressful and intimidating to deal with these phone calls. 

Debt collection refers to the process of recovering previous debts that the debtor has defaulted or failed to repay. Before picking up your phone or making a repayment, you must familiarize yourself with how debt collection works and who is a debt collector.

What Is Debt Collection?

This refers to a situation where a collection company or agency tries collecting old debts from a debtor. If you haven't made a credit card or loan payment and the payments are long overdue, a debt collector may contact you. Additionally, if you are an authorized credit card user for an entity or someone else or you have co-signed a loan, a debt collector could also contact you, looking forward to getting paid the amount owed. The overdue debts may be student loan debts, medical debts, credit card debts, among other forms of debts.

Your creditors contract the debt collectors as third parties to recover the debts on their behalf. If the debt collector works for the original creditor, they are paid a percentage of the collected debt. In other cases, the debt collector purchases the original debt cheaply such that after you fail to pay the original creditor, they come after you to recover the owed amount.

You could avoid this by seeking help from a debt relief agency. Therefore, you must learn more about credit card debt forgiveness and leverage it to prevent the troubles associated with debt collection.

How Debt Collection Works

Debt collection varies depending on the company collecting the debt. Some debt collection agencies deal with only a particular type of debt like student loan debts or medical debts. Others deal with a few years old debts, while other debt collection agencies might only deal with debts if they are past the statute of limitation that varies from state to state.

Debt collection companies come to recover an old debt after several months have elapsed after the due date and you are long past the repayment period. The collection depends on how much you owe, the creditors, and the type of debt you possess.

You are typically alerted through a phone call or a written notice through your creditor in case you have a past-due debt that is unpaid. For instance, if you've got a medical loan that you defaulted on, your creditor will try contacting you to ensure you get your account current. If your lender fails in getting the debtor to pay the amount they owe, they will eventually stop. The transition from your original creditor to the debt collection agency happens at this time.

The debt collectors and debt collection agencies use your information on file to contact you. They use your phone number, address, and even your relative's contact information. Wherever possible, the debt collectors use your personal banking information, including investment and savings accounts, to establish whether you have enough money to repay the debt. In some states, wage garnishments in debt collection are allowed.

How Do You Tell That A Debt Collector Is Legitimate?

Verifying the entity purporting to act on behalf of your creditor is of utmost essence. It helps you determine if they are indeed who they claim to be or a scam. So, what are some things to look for to determine whether the person on the other end of the phone is indeed a debt collector?

Can They Validate The debt?

Ask the purported debt collector to validate your debt. They should send you an email indicating where the debt originated from.

They Should Be Easy To Find

All reputable debt collection agencies have a website, meaning you can easily find where they are based.

Your Original Creditor Can Verify Them

Can your original creditor confirm that indeed they sent the debt collection agency? If yes, they should tell you which one and when to recover the debt.

Whenever you are long overdue with your due-debt repayment, your creditor sends a debt collection to recover it on their behalf. Therefore, you must understand how debt collection works to avoid being a scam victim.

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