How do Debt Collection Agencies Work

One way debt collectors operate, companies such as Allied Interstate, is that they have paid the original lender for the right to collect the debt. What does this really mean?

For instance, assume you owe credit card company A $5,000. For whatever reason, you can’t pay, and in this economy it’s not hard to come up with a reason. It could be job loss, over-extension of purchases, medical issues, etc., whatever it is, you have rung up debt to the point where you can’t pay the original lender. What do they do?

The credit card company will hound you for six months to a year, by sending bills in the mail, and making phone calls. Okay, you are starting to get annoyed, and you have told them that you just can’t pay, right? First off, don’t worry. Worrying won’t make the bill go away, and will just get you upset, so what to do?

If you have told the bank you just can’t pay because you lost your job, or whatever reason you have, and they are still trying to collect from you, then you will have to delay them. Realize that it will hurt your credit score, but you knew that in the first place, right? So what does the lender do? They sell the debt to a collection agency. Just what does this mean?

A collection agency makes it’s money by trying to collect the debt of people that owe money to companies. You didn’t borrow money from the collection agency, but they have “paid” for the right to collect the debt. They actually purchase the debt from the bank or original lender for pennies on the dollar. Then the collection agency makes it their business to try and collect the debt. They have all sorts of creative ways to do this, and some are downright illegal. These involve threats, harassing phone calls at all hours, threatening letters, etc. What to do? The best course of action is to not have any dealing with them whatsoever. What does this mean?

It means, no talking to them on the phone. Change your phone number if you have to, but do not, repeat do not speak to them! Nothing good comes from speaking to them, as you can’t pay the bill, correct? So don’t even bother with them. It doesn’t matter what they send in the mail, or if they have a lawyer sending it, or if they are trying to get you on the phone, have nothing to do with them. Why?

The fact of the matter is that all states have what is called a statue of limitations on debt. This means that in California for instance, the original company, or the lender, has three years to collect the debt from you. That’s it, just three years. After the three years is up, they might as well call your neighbor, because the original contract is null and void. Some states, such as Massachusetts might have up to five years, although this can change at will, so it behooves you to check out whatever state you live in. Now this doesn’t mean the unpaid loan won’t end up on your credit report, it will. But it will disappear off of your credit report like a bankruptcy after 7 to 10 years.

So don’t fall for the advertisements you hear on the TV or radio that state differently. Nothing is going to change this, unless the law is changed. The worst thing one can do is to fall for these debt relief agencies that promise the world regarding your debt. They want money, as they are a business. They are one step below a loan shark in fact. Not only will they promise to relieve your debt for a fee, they also promise not to have anything showing up on your credit report, and they lie. So ignore them.

The best advice is to not get into this mess in the first place, but this is Monday-morning quarterbacking of course. The fact is you accumulated this debt, you can’t pay, and now you must suffer the consequences. But it is not as bad as you might think. We don’t have debtor’s prisons like in old England anymore, so you will have a mark on your credit history, but it will come off in the future. Just don’t fall into the same trap in the future. Pay with cash, forget about the credit cards, and try to be more responsible with your purchases in the future.