If you’re one of the many Americans carrying unsecured debt, like credit card balances or medical bills, you may have already experienced the strange sensation of receiving collection calls from an agency that’s completely unfamiliar to you. It’s not your original creditor — so how did they get ahold of your debt? How can you ascertain whether they’re legitimate or not?
Here’s what happens when creditors have sold your debt to collections and the actions you can take to get your personal finances back on track.
Why Creditors Sell Debt to Collection Agencies
It’s a fairly common occurrence for creditors to sell debt to third-party collection agencies or debt buyers, usually three to six months after the default occurs. Why? The likelihood of consumers repaying debts in full diminishes over time. So, creditors hedge their bets and sell the debt off so they get a fraction of what was owed.
Passing the torch, creditors end up incentivizing debt collectors to get consumers to pay. This explains the often-overbearing tactics like calling constantly and writing letters.
Collectors Are Calling — What Are Your Options?
Sometimes these tactics even tip over into the side of being predatory or illegal, as NerdWallet outlines. For this reason, many experts recommend avoiding giving into pressure at first contact.
It’s your responsibility to do your due diligence by making sure the debt collector has accurate information. Third-party collectors may even sell debts down the line multiple times, meaning there’s a chance misinformation gets added into the mix. Before you make any payments or even verbally acknowledge your debts, ask collectors to provide validation in writing. This will help you ascertain who the collector is, what they believe you owe and how you can challenge them if you believe there’s been a mistake.
If you’re facing major unsecured debt, repaying creditors directly may not be a feasible option. In this case, it’s time to look into debt elimination options that’ll help you get in the clear.
Here are a handful of debt strategies to consider:
Debt consolidation: You’ll take out a loan for the purpose of repaying high-interest debts. Then you’ll work on repaying the loan at a fixed rate over time. This strategy is often advantageous if you can get a better interest rate on a loan than you’re getting on your outstanding debt.
Debt Management Plan (DMP): Working with a credit counselor, you may be able to enroll in a DMP in which you make a single monthly payment toward multiple credit card debts with the goal of paying them off in three to five years. One benefit is that a DMP may be able to get you lower interest rates.
Debt settlement: When successful, debt settlement helps consumers zero out their debts for less. You’ll be responsible for making monthly deposits into a special account. When you have enough, negotiators will contact creditors or collectors, attempting to reach an agreement in which you pay a percentage of your original balance. This won’t stop collectors from calling throughout. But as consumers who have been through the process write in their Freedom Debt Relief reviews, it can help settle major debts for less — providing a long-term solution.
Bankruptcy: Bankruptcy is the final straw of sorts. It’s a serious legal proceeding that will stain your credit report for up to a decade. But if you’re in so far over your head and have explored all the above strategies, declaring bankruptcy grants you a fresh start. Depending on the specifics, you may have to forfeit some of your assets.
Your creditors sold your debts to collections. Now what? This is the time to know your rights as a consumer and figure out the best way to get out of debt on your terms. Only then can you expect the calls to cease.