There is nothing scarier than having a stranger call you and tell you that you owe money. Right now, there must be a million questions in your head “Why are they calling me?”, “Who is the debt collector?” and most importantly “How can I get out of this?”
Worry not, we are about to answer all of your questions. We will help you understand debt collectors and why they are contacting you.
Keep Calm and Read On.
What is a Debt Collector?
These individuals work for either banks or agencies and their job is to collect the full outstanding amount that the customer has defaulted on. However, debt collectors are also the bridge between the customer and a bank or organization that provided a loan. Their goal is to build mutual understanding between both parties.
Why is a Debt Collector Contacting Me?
There can be two reasons why a debt collector is contacting you. The first one is that you have either failed to pay the bank or organization the payment of your credit card or loan. The amount defaulted can range from $50 to millions and it can be as old as 3 months to 10 years.
The second reason can be that the collector was trying to contact someone else with your name. They contacted you by mistake. However, the probability of this occurring is very low.
Though, if a debt collector is reaching out to you specifically, they are not doing so randomly.
Who Collects Debt?
When there is a default on any type of loan, banks and agencies contact their customers at various stages. The first time you are contacted, the bank that provided you with a loan will be the first one to contact you.
Banks
You’d be surprised to know that there are at least 7 departments that are tasked with the recovery of capital. They are also known as “buckets”. When the debt remains unpaid for a longer period of time, it is transferred to different buckets.
Debt Collection Agency
When a case is in which the debt remains unpaid for longer than 2 years, then banks contact agencies with staff that specializes in collecting debt from consumers.
However, the process of debt collection is similar.
The Debt Collection Process
There are three steps a debt collection agency or a department follows when reaching out to you.
Step 1: Customer data is received by the debt collector
Step 2: Data obtained is verified by a team
Step 3: Customer is contacted
If the debt collector manages to reach the customer, then the negotiation process can begin.
The Negotiation Process
Collections Agency’s primary goal is to encourage communication between both the bank and the customer to reach an agreement. Here are some strategies they follow.
Discount Offer
The bank’s goal is to recover the principal. Thus, to encourage timely payment of the loan they offer a discount.
Though this discount is on the principal or outstanding and it is more likely on vintage accounts.
Time Extension
Banks understand that consumers do not always have capital available on hand to pay the loan and provide a time extension.
However, the time extension option is usually for the same month. While a delay of 5 days is acceptable, any longer will be
Instalment Plan
The full outstanding amount is split into multiple parts. Alternatively, the case is released a certain amount is paid immediately (1 month) as a down payment and the rest is paid later.
If the case is released, the defaulter can travel to another country for work. However, security is provided in the form of a blank cheque given to the bank as a guarantor, but in the case of default, the case will remain open.
One-shot Option
Alternatively, you can pay your full outstanding amount immediately (within a month) and become debt-free immediately.
If it is not paid then the settlement agreement letter is not valid, you default and have to get a new letter the next month.
So, what now?
So, if a debt collection agency is trying to reach out to you, know that it is to help you. So, make sure you communicate with them as transparently as possible. You will be able to pay your debt and, fix your credit score.
Do you need a collection team that can convince defaulters? NCRI is a Canadian firm that has debt collectors who know how to do their homework to help you make recoveries more efficiently. Get in touch with us at info@ncri.com or call us at +1 888-670-NCRi (6274). Our timings are Monday to Friday: 9 AM – 6 PM and Saturday: 9 AM – 4 PM.
