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If you have ever fallen behind on your bills, you know what it means to be hounded by debt collectors. The constant barrage of late notices and collector phone calls can blend together into one big collection blur. Depending on the length of the financial setback, your debt picture can stay fuzzy for many months, or even years. Once you’re ready to focus on solutions, you may find you can no longer reach out directly to creditors to solve debts. In fact, the longer your bills go unpaid, the more likely it is that you will have to set your sights on dealing with debt collectors and debt buyers. And you should know that not all debt collectors are created equal. It pays to understand the difference between collectors and buyers.
There are a couple of ways you can tell upfront whether you’re dealing with a debt buyer rather than a debt collector. First, when your original creditor sells delinquent credit card debt, they are required to show a zero balance owed to them. The fact that you did not pay for many months leading to your account being charged off will still show on your credit report, but a zero balance owed is a clear indication your account was sold.
You can also call your original lender and inquire about who is collecting. They can tell you whether they sold the account, and to whom. If they still own the account, but have it out for collections, the lender can give you the name of the collector and information about how to contact the collection agency.
However, if you discover that a debt buyer is in charge of collecting on your debt, you may have some options.
Some debt buyers have a different view and approach to collecting when compared to third-party collection agencies, and even to the banks themselves. The two things a debt buyer can likely offer, when you are looking to resolve debts with them, are flexibility and patience. In fact, you may have more success when you are proactive about resolving collection accounts owned by debt buyers. Some reasons for this include:
Debt buyers, in contrast, are generally only limited in their collection strategies by the statute of limitations (SOL) in your state for them to file a legitimate lawsuit. This means that, rather than collection time limits measured in months, they can take a multi-year view of collecting from you. How does that help you? That’s where flexibility comes into play.
It is common knowledge that debt buyers pay very little for the debts they purchase. But those prices reflect the fact that most of the debts they buy will never be collected on. Investors in bad credit card debt generally collect on less than a quarter of the accounts they buy. Even with this low collection rate, debt buyers are willing to settle at a discount. And many offer good payment terms along with the settlements where you pay less than what you owe. Based on my experience, here are some general targets you can prepare for, depending on the type of debt buyer you are dealing with:
Having helped thousands of people resolve debts at all stages of debt collection, I find people have the most success by being proactive, rather than reacting to collections (such as waiting to be sued to take action). This means reaching out to collectors and debt buyers when you are ready with a plan to put the account behind you.
Getting an affordable payment plan put together will be simple. Just be sure that plan fits in your monthly budget, and you are not spreading yourself too thin. Negotiating with a debt buyer for a lower payoff is not complicated, either. Here again, never agree to any payment, or settlement with payment terms, unless you are confident you can complete the agreement.
Debt buyers, like most collection agencies and internal bank collectors, can see your credit report in real time. And debt buyers will often use sophisticated software and collectability scoring models (not credit scores) that help them set their own targets for settling each account. When you speak with a debt buyer about their agreeing to accept less than you owe, be upfront about the financial challenges you face. However, steer clear of offering any detailed financial information if what you share would cause them to view you as more collectable.
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