All About Collections

All About Collections

Written by Caitlin Wood
Last Updated June 2, 2021

Have you ever had to deal with the collections department of a company? Have you ever had to deal with a collections agency? If you’ve had to endure that experience, you know it’s stressful. They call you and they harass you, and they don’t slow down. So what’s a guy to do?

Collections agency

1. Understand the business

First off, you have to understand where the calls are coming from. If a collections agency is calling you, then you know they have purchased the debt from the company you owed money to and all they want to do is collect. They have most likely purchased debt for pennies on the dollar and are looking to make a profit from their purchase.

Collections agencies buy unpaid debts from cell phone companies, financial companies, credit card companies, utility companies, gyms, you name it. Who ever you receive services from and don’t meet your payments could, in theory, sell your past-due debt to a collections agency.

On the other hand, many companies have a collections branch. To the debtor this doesn’t make much of a difference since you can expect the same kind of repayment requests.

2. How it all starts

If your debt falls in the hands of a collections agency you will be notified either by mail or by telephone calls. You should mark down all communication and keep any documents related to your case to protected yourself in the event of an erroneous claim.

3. How it affects your credit score

When your debt enters collections a mark is automatically left on your credit file, and remains for 7 years. The impact on future credit or loan applications is huge. Your credit score takes a big hit and creditors don’t like applicants with marks such as these in their credit reports.

It’s important to make sure that whatever mark is left on your file is accurate. Read up on correcting errors in your credit report here.

4. Your options

If your debt is accurate (if you really do owe it), you need to determine what you want to do. If you are unable to pay down the debt, you may be interested in considering a debt settlement deal. In some cases collection agencies will take the mark off your credit score as incentive to pay your debt down. If you settle, make sure that you are given proof in writing so that the debt can no longer arise.

5. Prevention Tips

To ensure your debt never falls in the hand of a collections agency try to make sure you don’t over extend yourself financially. Live within your means. Also, to avoid cases of identity fraud, check your credit report at least once a year and look for any inconsistencies.

Also ensure that you notify your lenders in case you move so that bills don’t fall through the cracks.

Rating of 5/5 based on 1 vote.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. 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. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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