Working With the Original Creditor

Welcome to the 2^nd installment of Debt Collection Basics.  The first post discussed the fact that debt collectors provide valuable support to the credit industry, helping creditors to mitigate losses from otherwise uncollectable receivables, and helping to keep interest rates at a reasonable level.  Today’s post will discuss how to avoid being turned over to collections.  We will assume that the debts in question are legitimate and you are not disputing them.  Disputed debts will be dealt with in a future post.

   

Debt collection begins in the hands of the original creditor.  There are many possible reasons why you may have become delinquent.  Though you may believe that a death in the family or job loss are better reasons than just biting off more than you can chew, the reason behind your delinquency will matter little to your creditor.  What will matter is your previous payment history and whether or not you are communicating with the creditor.  You should make every effort to pay the original creditor, and pay them on time.  They will be reporting to the credit bureaus, and if you are late in paying your credit score will be adversely affected.  The worse your credit score the higher your interest rates will be on future credit, if you qualify at all.  If you do get behind, try to make some sort of arrangement to pay before the original creditor opts to forward your debt to a collection agency.  Communication is the key here.  Stay in touch.  Don’t avoid the calls.  It is in your creditor’s best interests to work with you before forwarding your account for collections.  Since collection agencies will charge a contingency fee that normally ranges from 20% to 40% of what they collect, creditors are incentivized to make every effort to collect their debts themselves, if at all possible.

 

Try to recognize in advance that you will come up short in meeting your obligations.  If you have a good payment history and have the foresight to contact your creditors before you are delinquent, you may have luck in getting them to defer your next payment.  The skipped payment is deferred until after your last scheduled installment.  This extends your payment plan, but may give you the relief you need to get through a temporary hardship. 

If your hardship is not temporary and you do not believe you will be able to meet your obligations in the foreseeable future, then you need to consider other options.  Again, communication is the key.  You should be the one initiating contact.  Don’t wait for the creditor to call you, and if they do, make sure you answer the phone or return the call as soon as possible.  Do not give them the sense that you are trying to avoid them.  If you speak to someone who appears sympathetic, get their name and try to establish a relationship.  Try to negotiate lower payments.  They may or may not be receptive to this. Even if they refuse to lower your payments, go ahead and make the largest payment you can as a show of good faith, while at the same time letting them know you understand this is not acceptable to them and that you are working to find a resolution.  Consider consolidating your debts, or borrowing from friends or family to pay off one or more of your creditors.  This will allow you to lower your overall monthly payments.  Credit counseling may be an option, but there are many potential pitfalls.  We will discuss this in a later post.


It is in the best interests of both yourself and your creditors to avoid 3rd-party debt collection, but try as you might this may not always be possible,  The next post in this series will discuss what to do once your bill has been turned over to a debt collection agency.  Thank you for visiting Debt Collection Basics!