Unpaid debts can quickly cause problems with your credit score and negatively impact your ability to borrow.
Late fees and higher rates of interest can also create problems for anyone struggling to manage their finances.
Eventually, unpaid bills can be sent to collections. Once debts have gone to debt collectors, you will need to deal with them quickly or face legal action.
In this article we will help ypu understand how debt collection works, how to deal with debt collectors and how you can pretect yourself if you experience abuse or harrasment from debt collectors.
HOW DOES DEBT COLLECTION WORK?
In the event that you have a bill that you can't pay, the lender may sell the debt to a collection agency.
At that point, the lender writes off the debt and the collection agency comes after you to get their money.
Their are collection agencies that buy debt for pennies on the dollar. If they can collect even half the total debt from you, their return on investment can be quite substantial.
It is important to consider the timeline of how debts become judgments:
- You agree to take on the debt.
- You find yourself unable to pay it.
- Interest and non-payment penalties pile up. Even if you're not adding to the debt, it's growing.
- Ultimately the original lender sends the debt to collections. According to CNBC money writer and expert Megan DeMatteo, the original lender will try to collect from you for about six months.
- You will be contacted by a collections agency.
- You can negotiate a payment plan.
- You may be notified of a judgment against you which can put your bank account at risk.
Once debt collection agency owns your debt, they can take legal action against you and may get a judgment against you that will allow them to garnish your wages and seize your bank account.
Before they take you to court, they may attempt to contact you in a variety of ways. However, debt collectors have rules they must follow.
Read More About How to Deal With Debt Collectors