A simple guide on how debt collection works

If you have been contacted by a debt collector or worried that you might get a call soon because you have failed to pay your dues on time, you probably have many questions and might be nervous about the whole process.

In this article, we will explain how debt collection works so that you can also understand the perspective of a collector. This guide will give you a better idea of what motivates a debt collector and what are the incentives involved in it.

How Does Debt Collection Work?

Debt collectors often work for debt collection agencies. Some do operate independently and many also have experience working as attorneys. Agencies act as a middleman between the company and defaulter. They try to collect the debt from the customer that is at least 60 days past due. The creditors pay a small percentage of the total amount collected. The agencies collect debts of all types like credit cards, medical loans, student loans, personal loans, phone bills, and more.

Debts that are difficult to collect, some agencies try to negotiate settlements with a customer for less amount. Debt collects can also use the aid from lawyers to file a lawsuit against customers who have refused to pay the debt.

What Debt Collectors Do?

A debt collector can use various methods to contact the customers such as phone calls, emails, and letters. A debtor tries to convince the customer to pay the borrowed amount. If the customer is not reachable, they look further and try to find other means of contact using computer software and private investigators. They also search the assets owned by the borrower such as bank accounts to determine the repaying capacity of the customer. Debt collectors can also report debts to credit bureaus, which can put a serious dent on the customer’s credit score. This affects the loan taking ability of the customer in the future.

A debt collector cannot seize a paycheck or reach into a bank to collect the amount unless they a judgment from the court. This means they have to rely on the debtor to repay the amount.

In extreme cases, the debt collector takes the debtor to the court, there they have to win a judgment against the customer in order to garnish wages and bank account. In such a case, the debt collector still has to contact the bank and the employee before they can take the money.

Even the creditor wins, it can be difficult to collect the money. Along with levies on their bank account or vehicle, debt collectors can also try to place a lien on personal property to force the sale of the assets to collect the borrowed amount.

Now, that you have understood how the debt collectors operate, you should feel more encouraged and responsible to pay your debts on time before a debt collector in Rwanda contacts you.