On average, Americans have $38,000 in debt. This excludes mortgages and student loans. So what happens when you experience financial hardship and can’t continue to make payments on the debt you have?
That is where debt collection comes in. How does debt collection work? Read on to learn about the processes and how to protect yourself.
How Does Debt Collection Work
Approximately 26% of consumers have at least one unsecured debt in collections. Unsecured debt includes credit cards, personal loans, etc. Secured debt includes car payments, mortgage payments or any debt where you put up collateral.
The first step in any debt collection process is triggered by your missing payments. Initially, the credit organization will begin calling you in an attempt to get you to pay what you owe. You will also include late or missed payment fees.
When you have missed payments for between 30-60 days your creditors will become more aggressive. Yourdelinquency will also be reported to the credit bureaus.
Typically, after 90-120 days past due, creditors sell the debt to a 3rd party collection agency. If your debt is transferred you can expect additional efforts to obtain the money owed.
After 6 months, accounts are charged-off and closed which means you cannot bring that account current.
If you do not make your debt current, this may lead to wage garnishment, bank levies, property liens, or lawsuits.
How to Respond to Debt Collection
The first step in dealing with debt collection is to begin to address it. When you begin struggling, call your creditors as soon as possible. Often times they have plans in place that can help you through short term financial struggles.
If you are contacted by a creditor and you don’t think the debt is yours, then you need to ask for details of the debt, in writing.
Identity theft is on the rise so make sure that the debt is legally yours before you begin to make payments. Do not make payments on loans of friends or relatives as this could open you up to some responsibility for the debt in the future.
Arrange a Payment Plan
If the debt is yours, to stop the collection calls, you must work with your creditors to create a payment plan. Paying something is better than paying nothing in the eyes of your creditors.
Before you agree with anything, make sure you fully understand your future obligation. Can you afford the new payments? You do not want to end up in the same position by agreeing to payments that are larger than you can afford.
If you are struggling with how to negotiate payments, contact a credit counselor or debt settlement service. They can provide tips on how to negotiate your debt.
Financial hardships are common and you are not alone. The first step in the process is to tackle the problem head-on.
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