We have all heard stories of those dreaded debt collection agencies. So, when would you come into contact with this agency? Well, if you default on your loan, credit card debt, or even utility and internet payments, your account could be handed over to a debt collection agency.
What is a Debt Collection Agency?
A debt collection agency is a third-party company that is hired to chase down a company’s debtors. Basically, their job is to make sure that the debt you owe your credit card company, bank or utility company (to name a few) is paid back.
There are many people who don’t wish to or cannot pay debt collection agencies because they feel that there is no obvious benefit to paying off their debts. Besides not getting hounded by debt collection calls, that is.
However, there are some serious consequences to trying to avoid debt collection agencies that you should know about.
Bad Credit Report
Debt collection agencies report all accounts they are responsible to collect from to credit bureaus. If your account is reported, your credit rating takes a beating. Your credit score will fall badly.
Remember, the late payments or non-payments to the company you borrowed from would already have impacted your credit score. So, by the time the collection agency reports your account, your creditworthiness really takes a hit.
If you carry on paying off your debt to the debt collection agency, you do get the benefit of showing on your credit report that you paid off your debt. It lessens the damage. This is critical when you are trying to get fresh credit.
Repeated Collector Calls
A debt collection agency’s only job is to get you to pay off your debt. Usually, these agencies only make a profit when they collect debts from the delinquent accounts assigned to them. Which is why you will receive numerous calls and letters from these agencies.
You have the right to call the agency and ask them to stop calling you, however, do remember that there a number of debt collection agencies that are just fine with ignoring the letter of the law and will continue to hound you.
A collector usually gets a few months to collect a debt from an account. If it is unable to do so in that time, the account is passed on to another debt collector. So, because your account gets passed around (unless you pay off your debt, that is), and since these agencies don’t usually share information with each other, you could end up getting multiple calls for the same debt.
High Interest Rates
Delinquency on debts means that while your application for a new credit card, or a loan, may not get rejected, you will end up paying extremely high interest rates.
Added to that, other service providers such as cable or smartphone companies will demand that you pay a security deposit upfront.
Difficulty in Getting a New Job
There are many companies that will check your credit report before offering you a new job. And if there is an unpaid debt reported by a collection agency, you might now get that job, especially if it is a finance related or a senior management role.
Lawsuits
If you think that all collection agencies can do is chase you, then you are sadly mistaken. A collector can actually sue you for non-repayment of debt. And if they are able to successfully get a judgement against you, they could ask the courts to garnish your wages, so that you are forced to pay your debt.
At the end of the day, it is best to ensure that you pay off your debts instead of facing the stress of dealing with a collection agency.
