3 truths about debt collection
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Few things are as agonizing as a call from a debt collector.
There are more than 7,000 third-party collection agencies in the United States, and if you’re 30 to 90 days (or more) late paying your bills, you’ll likely hear about it. In 2013, debt collection lawsuits accounted for around 25% of civil cases in state courts, up from around 11% in 1993, according to a 2020 study. Pew Charitable Trusts report.
From October, a new rule finalized by the Consumer Financial Protection Bureau (CFPB) allows collection agents to contact you not only by phone, but also by email, SMS and social media platforms like Facebook, Instagram and Twitter.
It’s a bit alarming if you are already in debt. But some debt collectors argue that you don’t have to be afraid of these calls.
CNBC Select spoke with the president of the NY Collectors Association and Management of capital collection founder Jacob Corlyon, on how debt collectors can come in handy when you’re in debt and don’t know what to do.
“We’re not all bogeymen,” says Corlyon. While he admits his industry has a bad reputation for obvious reasons, he is determined to change the relationship debt collectors have with consumers.
Corlyon argues that he and his fellow debt collectors are there to bridge the gap between creditor and debtor. Ideally, you should feel good about asking debt collectors to help you better understand your balances, interest rates, and the payment options available when you are in debt.
But can we really step out of our past and view debt collectors as allies? Corlyon says yes, and coming up, he makes three arguments as to how he tries to change the bad perception of debt collectors:
The number one lesson in reframing your view of debt collectors is understanding how they are paid. Most of the time, they have less skin in the game than your original creditor, Corlyon argues.
“We haven’t given credit. We’re not strapped for cash,” he said. CNBC Select. “The creditor is the one who is waiting for that money to come in. We are called upon as a consumer advocate to work with the consumer and find a solution.”
In other words, your debt collector must also respond to your creditor. Debt collection companies often work on a contract basis for businesses, and they want to maintain a friendly relationship on all fronts. When you’re happy and stick with a repayment plan that’s right for you, their customers are also happy because the money they loaned gets clawed back, Corlyon says.
While debt collectors are not desperate for your money, they will always use any method available to contact you. (Corlyon even admits that his company contacts debtors through social media.) As long as your debts are past due, you will likely receive frequent calls from collection agencies. And your credit rating will also be negatively impacted when your overdue accounts are reported to the credit bureaus.
So you have a real incentive to work with the debt collector and come up with a plan to get your finances back on track.
“We want to come up with some sort of solution that works for that person financially, as well as for our clients,” says Corlyon.
Even if you are in debt, you still deserve dignity and respect, says Corlyon. He recognizes that not all debt collectors take this approach, but this belief is the foundation of his business.
“We are customer centric,” says Corlyon. “We are solution-oriented. Our belief is that everyone should be treated with empathy and provide the concierge experience so that we can get them back on track and get them back to our client in good standing.”
If you currently have debts in collection, remember that you have rights. Ask questions if you don’t understand your debt, talk if the debt isn’t yours, and don’t be afraid to set limits on when you can or cannot be contacted. The CFPB provides plenty of resources as you navigate debt collection, including scripts you can follow to find out what to say. You have rights and it is important to understand them before agreeing to a repayment plan. Enlist the help of your debt collector to design a payment plan that fits your budget.
This educational approach, centered on the consumer, is both more human and more financially efficient, according to Corlyon: “We collect for a very large fintech company, and the recovery rate that we were able to obtain for them is 5.5 times the average recovery rate.
It’s understandable that most people have negative associations with bills, debts, and debt collectors.
Yet facing your debt head-on is really the only way to end the cycle. Overdue bills stay on your credit report for up to seven years, which can make it difficult to get a car loan, rent an apartment, or even open a new credit card.
Aside from bankruptcy, which is an option for severe cases, the only way to get out of debt is to pay it off step by step.
You don’t have to wait for a debt collector to call you to get started, but if you get an unwanted collections phone call, there are also a number of free tools available to help you control your money.
If you want to better manage your finances, consider signing up for a budgeting app so that you can get an idea of your monthly income and expenses.
The You need a budget (YNAB) app can help you take debt repayment seriously by making a plan for every dollar. The popular free app mint is also a good place to start because it will give you an overview of the impact of your debt on your net value.
Once you understand where you stand, you’ll want to develop a debt repayment plan, with or without the help of the debt collector. There is the avalanche method repayment of the debt, or the snowball method, which helped this couple repays $ 45,000 in debt in less than two years.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.