If you have recently fallen behind on your bills, it’s possible that you’ve received written notice in the mail saying that your debt has been sold to another company. Your past due debt has likely been sold to a collection agency. Most creditors do not pass off your unpaid debt to a collection agency until it is many months past due.
Once you are a couple of months past due on your payment plan for a loan, your utilities, or a credit card, creditors will begin making phone calls to get you to pay your delinquent debt. And usually, after another three to six months, the phone calls may stop. However, this doesn’t mean you are off the hook.
Having your unpaid balance sold to a debt collection agency might mean that you don’t need to deal with the original creditor anymore, but you can rest assured that the debt collectors are unlikely to rest until you pay what is owed.
We understand it may be nerve-wracking to navigate dealing with third-party collection agencies, especially during financial hardship, which is usually the cause of unpaid debts. Additional resources and education might be helpful in getting through this difficult time.
What Is a Debt Collection Agency?
When a consumer does not pay their debts, the original creditor seeks to use every tool at their disposal to get payment. One of the strategies that creditors turn to when all other avenues have been exhausted is to sell consumer debt to a third-party collection agency.
Suppose your credit card company or lender has sold your debt to a debt collector. In that case, the consumer must be given written notice in the form of a debt validation letter within five days of the debt collection agency’s first attempt to contact you. The debt validation letter must include the amount of money you owe, the company names of the original creditor, and a statement of your right to dispute the debt.
Some credit card companies or other lenders hire a debt collector to handle old debts, which would mean that you still owe the money to the original creditor. However, a significant portion of creditors sell the debt altogether to the debt collection agency, which means that you have your previous agreement with the original creditor no longer exists. In that case, you are accountable to the debt collection agency for the remainder of the money you owe.
Why Do Creditors Sell Debts?
Utility companies, credit card issuers, landlords, and lenders are in the business of lending money and receiving payments. They are not in the business of chasing down borrowers for debt collection. Many lenders see it as a waste of time, money, and resources.
Instead they sell the debt to companies that specialize in collections so they can get some of their money and get back to working with other borrowers.
Debt collection agencies can dedicate their time and resources to settling the account in ways other credit services are unwilling to. When a creditor has sold your debt, you must now work exclusively with the collection agency to solve your debt problems.
How Debt Collectors Impact Your Credit Score
Unfortunately, no matter how you slice it an account with a debt collection agency looks bad on your credit report. Once your debt has been sold to a collection agency, the account will appear as a derogatory mark on your credit report. This will tarnish your credit history and bring down your credit scores significantly.
Having debt in collections is one of the most damaging items you can have on your credit report. The severe impact that debt collection has on your credit scores can take years to reverse, which is why it is so important to try to get current on debts before they get to that point.
If your debt has already been sold to a debt collection agency, the effect it has on your credit report will diminish as time goes on. However, it will not fall off all of your credit reports until seven years have passed.
How to Deal With a Debt Collector
If you are forced to deal with debt collection agencies, the best course of action is to pay off your remaining balance as quickly as possible. It is best to get it over with if you have the financial means to do so, as dealing with a debt collector can be stressful.
If you cannot afford to pay your debts, it would be wise to familiarize yourself with the federal Fair Debt Collection Practices Act so you know what your rights are and what behavior is permissible and what is not from a debt collection agency.
If you find yourself in a particularly sticky situation with debt collectors, it might even be a good idea to seek out legal help that could give you debt advice and answers to money questions you have while navigating this.
What Are Your Rights?
You have a right to dispute debts sold to debt collection agencies within 30 days if you believe they are not legitimate. If consumers dispute a debt, collection agencies must respond with a written verification before attempting to reach you again. This verification can be a copy of a bill with the company names mentioned of the original creditor and the amount of total debts you owe.
Before interacting further with the debt collectors, read up on the legal information provided in the Fair Debt Collection Practices Act so that you can know what kind of practices you can expect and what type of conduct should be reported.
Fair Debt Collection Practices
While a debt collector may take extreme measures to get a balance paid, the collector’s ability to take certain actions is restricted to protect the consumer from harassment. For example, a collector cannot contact you before 8 am or after 9 pm unless you state otherwise. The agency is also not allowed to call you to collect a debt during work hours if your employer does not permit personal calls.
A collector cannot engage in harassment or abuse, meaning that they cannot threaten you with violence, lie to you about how much money you owe, or use obscene language. Additionally, if you have an attorney and the debt collectors are aware, they must communicate with your legal representation and not you directly.
Recovering From Debt Collection
To say that dealing with debt collection can be a headache would be a major understatement. But once it is over and the debt has been handled, you can start the recovery process to get on a better track towards financial prosperity.
Here are a couple of pieces of advice to help you recover from the detrimental effects of debt collections:
Rebuild Your Credit
Your credit reports are likely to be damaged in the aftermath of collections. But the good news is that you don’t need to wait for the derogatory marks to fall off your credit report to improve your credit. Instead, you can use that time to rebuild your credit history by paying your other debt on time.
You could obtain a credit-builder loan or a secured credit card to improve your payment history and increase your credit score. Another way to quickly boost your credit is to have a family member or partner add you as an authorized user to a long-established credit card account that’s in very good standing.
Being an authorized user on another person’s credit card will allow you to benefit from their payment history and account age. Simply being added as an authorized user could have a massive impact on your credit score.
Pay Off Debt
One of the best pieces of debt advice you will ever receive is to keep your debt minimal. Paying off your debt will protect you from losing control of it. When you have a significant amount of debt, your monthly budget is taken up by the minimums you need to pay for every credit card or loan you have. We recommend paying off the higher interest debt first, like online loans with no credit check, to save yourself some money.
Paying off as much of your debt as you can will leave you with more money to spend on the things that make your life better. Instead of wasting all the money you pay on interest and fees, you can put that money towards saving for a stable financial future.
Attain Stability in Your Finances
After experiencing what it’s like to work with a debt collection agency, you likely would be willing to go to great lengths to avoid having to do that again. The best advice for ensuring that you never require a collector’s services ever again is to become fully stable in your finances.
Approach all debt with caution and keep your credit utilization rate under 30%. Have a large emergency fund so that you stop relying on a creditor to survive unexpected expenses. Stop living paycheck to paycheck by building your savings so even if you experience temporary job loss, you won’t be in any financial danger. These goals will take time to reach, but true financial stability brings a peace of mind that is well worth the effort.
Dealing with debts sold to collection agencies and other companies
What Happens When my Debt is Sold to a Collections Agency? | Equifax
The Truth: Should You Never Pay a Debt Collection Agency? | SoloSuit Blog
If a debt is sold to another company, do I have to pay? | DAC
Ask Stacy: If My Debt Is Sold to a Collection Agency, Do I Still Have to Pay It?