Dealing with Collection Agencies

Dealing with Collection Agencies

Written by Caitlin Wood
Last Updated October 17, 2012

A collection agency pursues payments on debts owed by others. Both businesses and individuals can be pursued by collection agencies. Collection agencies work as subsidiaries of other companies, or as stand-alone institutions. They try to collect a portion or a full amount of the debt owed. Independent collection agencies charge fees to collect debts, or buy the debt out right and try to collect it for themselves.

Everyone dreads calls from collection agencies: they’re pushy, they’re aggressive and they don’t leave you alone – but they’re there, they are a reality and it’s important to know how to deal with them.

When do collection agencies get involved?

Collection agencies are called in when a business’ attempt to acquire payments on debts owed are exhausted. They are a measure of last resort for a business.

When a collection agency takes over a debt account they take over all of the responsibilities of collecting the debt and employ various aggressive tactics to ensure that they get paid. This means that they will actively call and harass a customer to make his or her payments. Collection agencies are known for being ruthless.

How this affects your credit score

When your debt falls in the hands of a collection agency a mark is left on your credit profile. This automatically hurts your credit score. The consequence of this is that while it’s quite easy to hurt your credit score, it takes a lot of time to rebuild it. This reason alone is enough for you to take very seriously any debt that falls in the hands of a collection agency.

This mark is removed when your debt is paid, but during the time that your debt is in place and the file is in the hands of the collection agency you will find it very difficult to find any sort of financing. It is possible that lenders may see you as too risky to lend to. Not all lenders are interested in your credit profile however; this notion extends mostly to car lenders, private lenders and other “unconventional” lenders.

What can you do if you really can’t pay your debt off?

Well, if you ever reach such a situation you have 3 basic options available to you. The first is debt consolidation. You can enter a debt consolidation program or obtain a debt consolidation loan (if you have security, home equity is best for this situation because you’ll get a low rate). You can use a debt consolidation loan to pay off the debt in the collections agency as well as other debt, and make your payments to a single institution at a lower rate.

The other option you have is debt settlement. You can seek help from a debt settlement agency and try to negotiate down your debt. This is always a viable option because collection agencies would prefer to get some money back as opposed to none at all.

The option of last resort is always bankruptcy. The issue with this one is the long-lasting effect it has on your credit score, however it does clear you of all of your debt obligations.

In case of fraud…

If you are being harassed by a collection agency for payments you do not owe, it is possible that you may be a victim of identity theft or some other form of scam. It would be best to notify credit institutions like EquiFax and possibly contact your local authorities.

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Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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