Debt collection process and its types

When you know that you fell behind on payments may be a credit card or a student loan, every phone call can make you nervous. It is because you now that a debt collector is calling you to recover your debt.

A collection agency like Cedar financial is trying to recover the debt you owe to a creditor. They will keep calling unless you pick the call and have a dialog with them regarding how you will repay the debt. Don’t worry, a collector works with a reputable firm and they adhere to rules while recovering a debt. They won’t harass or threaten you, but still, being informed is important.

Here in this blog, we will try to understand what a debt collector does. Also, to know more about cedar financial, read this.

Process of debt collection

A creditor doesn’t send your account immediately to a collector. They wait for a period of thirty to ninety days and try their collection method. First, they send call you or write to you to remind you about the payment. If you don’t respond, they send you a letter of demand explaining the consequences of not paying, if you still don’t respond, they send your debt to a collector or sell it to a debt buyer.

Types of collectors

There are three types of collectors mainly as mentioned below:

1. An internal debt collector or first-party debt collector

They are not exactly debt collectors as they work for the company that loaned you the money. They are a part of the company, and since they are not traditional collectors, they don’t have to follow any rules per se.

But that doesn’t mean that they can be rude or aggressive or can threaten you. They have to be polite if they don’t want to ruin the company’s relationship with the debtor. If a first-party collector is calling you, it is great as you can talk to the lender yourself and asks for more days or negotiate a deal.

2. Collection agencies or third-party collectors

They are a different firm who deals with debtors and work on commission to recover the debt. They are known as third-party collectors, and they are a bridge between a creditor and a collector. A lender hires them when a debtor doesn’t pay even after 30-90 days.

A collection agency works on commission, and they take 25%-45% of the total amount recovered. They have to follow all the laws that are there to protect the debtor otherwise; they can get into legal troubles.

They are more successful in recovering the debt as they have much more experience than a lender.

3. Debt buyer

When debt becomes too old to collect, or the creditor has tried every method to collect it and has failed, it cuts loses. They do this by selling the debt to a debt buyer.

A debt buyer is a firm that buys a stock of old debts for pennies on the dollar.

They pay so little for the debt because most of the time they are not able to collect the debt. If they do recover some amount, they keep it.

A collector usually gets accounts of debtors who are behind on their credit and debit card payments. Knowing how this industry works is important for a debtor to prepare himself/herself better.

Jackson Gilbert is a Blogger. With his skills, he has been helping fellow marketers and brands worldwide. When not glued to his laptop, he can be found making travel plans that rarely happen.