Debt Consolidation

Collection agencies are companies hired by creditors to collect or recover funds from debts accounts that are past due. A lending company may have its own collection agency as a separate division or subsidiary. Collection agencies are usually hired when lenders have attempted to collect the debt amount but have failed to do so. The fees charged by the collection agencies for collecting debt is usually a percentage of the amount collected.

A debtor does not owe any money to the collection agency but he does owe money to the creditor. In the event the debt account is bought by the collection agency, the debtor owes money to the collection agency and not the creditor. In majority of the cases, collection agencies acquire the right to collect debt. However, a collection agency has the authority to take legal action against a debtor if the need arises and if it has been empowered to do so.

The collection agencies are required to abide by norms laid down in FDCPA or Fair Debt Collection Practices Act. They are regulated by Federal laws.

How do collection agencies charge for services offered?

Collection agencies usually charge in the any one of the following three ways-

• They charge a flat fee.
• They may sell the debt account to any other collection agency
• Collection agency may take a percentage of the debt amount they collect.

A collection agency uses one of the methods for debt collection.

• Litigation
• Letters
• By communicating directly with debtors on telephone.

Advantages of hiring collection agencies

There are many advantages in using the collection agencies for debt collection. Some of then are as follows-

• Collection agencies usually specialize in debt collection and it has been proved time and again that hiring the services of a third party is beneficial.

• Lenders do not have to take the pain of chasing debt accounts and this saves a lot of time and money.

• By combining debt collection as well as sales ledger management, chances of recovering debt amount increases.

Disadvantage of hiring collection agencies

Just as there are several advantages of hiring a collection agency, there is a disadvantage too. It is as follows-

Hiring the services of a collection agency allows debtors to interact directly with the debt collectors. There are several instances when debt collectors have been blamed for misbehaving with debtors. Ill behavior of the debt collectors may jeopardize the relation between the creditors and the debtors.