Debt Collection Agencies : Understanding a Growth Industry

Author: Martin Mcallister

Consumers in the UK collectively owe in excess of £1 trillion according to recent media reports. Much of this debt is due to borrowing on credit cards, bank loans and mortgages; but as consumer borrowing increases, so does the amount of people encountering financial difficulty in paying back what they owe.

As a result, more and more financial agreements are becoming delinquent and are subsequently passed from the original lender to a debt collection agency. Debt collection agencies are businesses that collect past-due bills and accounts receivable for other persons or businesses in exchange for a fee. Collection agencies charge for their services in one of three ways: a flat fee, a percentage of the amount recouped, or more commonly through a direct purchase of the delinquent account.

Attempts to collect small or medium sized debts are best done using debt collection agencies that charge a flat fee for their services. These agencies are likely to work just as hard at collecting a small debt as they are in trying to collect a larger debt.

The third option is rapidly becoming the most popular among the larger financial institutions as they seek to cut their losses and free up resources away from debt collecting. In most cases, these financial institutions have large portfolios of outstanding debt, and selling it on to debt collection agencies allows them to recoup some of the money loaned out and free up costly resources away from chasing the delinquent debt.

In order to collect due debts most collection agencies will use one of three tactics: letters, telephone calls, litigation. Typically, debt collection agencies will begin the collection process by sending a series of notification letters, often allowing the debtor to enter into negotiations to repay the debt. These letters are often called ‘demand’ letters. The final notification letter that is sent out generally warns the debtor that if no contact is made prior to a certain date then the debtor’s name - whether it be an individual or a company – will be passed onto a more intensive method of debt collection.

In addition to letters, some collection agencies might also phone the debtor directly, again allowing the debtor to work with the agency to agree a plan to repay the debt. Telephoning a debtor at home can sometimes have the best results in collecting a delinquent debt. The third method, litigation, is a last resort and is generally only used when all other attempts to reclaim the debt have failed. Litigation involves taking the debtor to a small-claims court and could eventually result in the debtor being made bankrupt, depending on the amount of debt owed.

Other services provided by debt collection agencies include locating absent debtors who can no longer be reached at the address or telephone number listed on their accounts. Some agencies also offer ‘doorstep’ collection, whereby they employ a number of collectors to visit debtors in their homes to arrange the repayment of debts owed.

Debt purchasing is becoming big business in the UK with many specialist debt collection agencies, such as Capquest Debt Recovery, providing advice on how best to proceed with the recovery of unpaid debt. Should you have a need to employ the services of a debt collection agency make sure that they are members of the Credit Services Association, a regulatory body associated with the debt collection and financial industries.

Article Source: http://www.articlesbase.com/credit-articles/debt-collection-agencies-understanding-a-growth-industry-108392.html

About the Author

Capquest is a member of, and are regulated by the Credit Services Association.

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Owing a debt is perfectly okay as long as you are equipped enough to repay it. The problem arises when you debts accumulate slowly and you find yourself under a heap of debt obligations without sufficient resources to repay. The situation becomes worse when you are perturbed by harassing creditor calls and professionally skilled debt collecting agents visits you personally demanding the money making your social life uneasy and unhealthy.

There are two possible ways to get rid of debt. The best way is just to forget it. If you don't acknowledge the debt, chances are that your creditors would call you repeatedly to recover the dues. But eventually they would be frustrated and stop calling you forever. This is humorously called Ostrich method. But the fact remains that it is not everyone's cup of tea. The best way to get rid of debt is to repay it. Of course it is easier said than done. Repaying your debt all alone is a next to impossible task. Most creditors are reluctant to extend the repaying period and even if they do, they charge a price that is the interest which increase at a combined rate.

Herein lays the benefits of IVA (Individual Voluntary Arrangements). IVA UK is a legislative body which guides you by a proper debt repayment process and secures your financial wellness.

Once you register under debt repayment program conducted by IVA UK, the executives would hold a meeting with your creditors. After careful consideration of our monthly expenses, they would arrive at an amount you need to pay every month to the organization which would in turn distribute the same with creditors. Chances are that most of your creditors would agree to it as it would give them chances of recovering at least some money. Once agreed, all you need is to pay the specified sum for a period of five years. Even if some amount is left outstanding, the same is written off thus freeing you of all debt burdens. An IVA UK debt solution helps you repay debts easily and helps you avoid social stigma associated with bankruptcy.

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While debt consolidation almost always helps people get control over excessive, high interest debts, there are actually instances when it doesn't offer much relief. The general idea of debt consolidation is terrific: smash all of your debts into a single account, and somehow pay less per month and pay it off quicker. When you put it that way, it seems a little too good to be true - similar to a "get rich quick" scheme!

Thankfully, not all debt consolidation is a poor financial move- in fact, most are legitimate and offer a way to get control over your financial situation. Just keep in mind the following when you are considering a debt consolidation:

You May Not Qualify For a Debt Consolidation Loan

Usually, by the time someone decides they need a debt consolidation loan to pay off all of their other bills, their credit is a bit on the poor side. Having a low credit score, or numerous late payments made on your bills will make it very difficult, if not impossible to obtain a debt consolidation loan. People who really need a debt consolidation loan tend to be people who are making their payments late (which sparks their interest in the debt consolidation loans in the first place).

Some debt consolidation loans are on to this... and take advantage of this issue. While you won't qualify for their best loan products with bad credit, they might try to entice you with a high interest loan that results in lower monthly payments. What's wrong with that, you might ask? Isn't having a lower monthly payment the entire point and reason for consolidating your debts with a loan? Yes... except that a loan with 22% interest and lower monthly payments means you're going to be paying even MORE to pay off the original debt than you would have if you continued to make your regular monthly payments.

While not the ideal situation, if you really cannot keep up with your monthly payments as they are, you may have to consider that 22% interest loan, or search for ways to increase your income so that you can keep up with your monthly payments.

Credit Card Balance Transfer Offers For Consolidation

Credit card companies send out various offers to consumers hoping to get new card holders. They also send balance transfer offers to existing credit card holders, hoping to get their existing customers to transfer other debt to them, as well. While a low interest or 0% interest balance transfer offer is a reasonable solution to consolidate higher interest debts, it's important that you can either pay off the balances you transfer within the low APR/0% interest time period or you have another solution for when the promotion ends. Often, a balance transfer offer is only good for six months or a year - and if you haven't paid off your balance before that time, you end up with a high interest rate on the remaining balance.

Debt Consolidation Companies That Will "Do It All" For You

There are a number of debt consolidation companies that negotiate lower interest rates with your creditors for you. Sometimes they have a higher success rate than what you would have yourself if you called to try and get lower interest rates or better repayment options, but not always. Instead of using a debt consolidation company to take care of that for you without at least trying it for yourself, give it a go on your own and see if you can't make arrangements with your creditors - you may be pleasantly surprised at the outcome.

The trouble with the "do it all for you" type consolidation company is that there is a great many of them who set things up for you, arrange for lower interest rates or different repayment terms to make it easier on you to repay; and then take a monthly payment from you to forward on to each of your creditors for you. Sounds ok so far, right? Most take a fee for the service, a fee you wouldn't pay if you did this on your own, and some make your payments late. Making payments late to companies after you've negotiated lower interest rates or a different repayment plan can completely negate the arrangement and send you right back to your original high interest rate and high monthly payment.

While some debt consolidation programs really do help people, it's important that you research and determine whether or not you must use a company or if you can improve your situation with some slight changes to your personal budget.

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This is an unpredictable world; you cannot tell whether the next moment will you shower with loads of happiness or with hell lot of sorrow. So if unfortunately you come under some kind of debt and you are paying it with comfort but one day you fell ill or something awkward happens and you could not pay your debt on the basis of plan which was decided for your debt repayment and suddenly your debts and interest rates increases which can’t be handled by you alone. The ‘Debt Management’ comes into picture and helps you in these testing times.

The ‘Debt management’ plan helps if you have unsecured debts and owe money to more than one creditor. The debt management plans helps you pay the debt from the surplus money, which is left over after you have paid all your living expenses and household bills from your income. The dept management plan is made in such a way that you are able to pay a reasonable amount to all the creditors whose money you owe. One of the biggest advantages of ‘Debt Management’ Plan is that the charges and interests are often frozen, so your debt doesn’t increase. The charge for adopting ‘Debt Management’ Plan is nil, but sometimes you will be required to pay 15% to 17% of the monthly payment as a start up fee or monthly management fee. The amount you pay to your creditor depends upon your surplus income and how much you owe to the creditors. The amount can be paid in the form of cheques and if you cannot make payments by cheques then paying by cash is a viable option. These ‘Debt Management’ Plans can’t be discontinued at your will, but you should try to avoid this situation because this might again increase the stress on you as the creditors start knocking at your doors and the interests might again be restored by the creditors.

You can always take the help of ‘Debt Management’ Plan and can easily repay your debt with low interest rates and live life with your head held high.

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Are you a credit card holder? Are you aware that you still need to pay off your debt no matter how difficult your financial situation is? Even if the amount of your outstanding balance is small, you are still responsible for it. If you don't fulfill the requirements, you can be subject to collection action and legal action.

In United States, due to the global economy crisis in 2008, many Americans have been knee deep in debt. Many of them are unable to make payment for their credit cards. If you are one of the victims, you are reminded to look into this matter seriously. Although it is an unsecured debt, the creditors have the authority to take action to collect the amount of money that you owe on the card from you. At the same time, they can also collect additional fees, such as late charges and finance charges from you since you have dragged your payment for a certain period. The creditors will not allow this matter to stop here. They will contact you through letters as well as phone calls to chase you for payment from time to time. In some circumstances, the original creditors will appoint debt collection agencies to execute the job. It is indeed stressful to deal with the "professional" debt collectors.

The banks or the card issuers have the right to cancel your cards too. This will definitely cause negative impact on your credit history. The creditors will indicate this matter on your credit report and this negative item will be shown in your report for 7 years if there is no action being taken to fix it.

Bear in mind that your creditors will not stop taking action on you even you are experiencing job loss, reduction in your income, serious sickness and so on. When you ignore the attempts of the collection agencies to collect your debt, the creditors can seek legal action. They can file small claims suit against you in a local court. Do you prepare to pay additional court cost?

To sum up, don't underestimate your credit card debt. Put in hard effort to eliminate it no matter how tight your budget is.

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