Debt collection agencies are businesses that collect debts owed to creditors. When you fall behind on payments for your credit cards, loans, or other types of debt, your outstanding balance may be sent to a collection agency. This can be a stressful situation, as you may receive regular phone calls and letters from the agency attempting to collect the debt.
It is important to understand how debt collection agencies work and what protections and assistance may be available to you. Some debt collectors may use aggressive tactics in an attempt to collect the debt, but there are laws in place to protect consumers from undue harassment.
Debt Collection: What Is It?

Debt collection refers to the process of pursuing payments from borrowers who have failed to make loan or credit card payments. You may be contacted by a professional collector if you have missed several payments and they are now severely overdue.
If you have co-signed a loan or are an authorized user on someone else’s credit card, you may also receive calls from agencies seeking payment for the money owed. These debts can be for anything, including:
- Medical debt
- Car/auto loan debt
- Personal loan debt
- Credit card debt
- Student loan debt
- Unpaid utility and phone bills
Debt collectors are third-party companies that purchase outstanding debts from original creditors in order to receive payment. Oftentimes, these agencies will buy the original debts for pennies on the dollar after you fail to make payments to the creditor. They will then come after you for the full amount owed.
How Does It Work?

Debt collection can vary depending on which company is collecting the outstanding balance. Some collection agencies may only deal with a specific type of consumer credit, like medical or student loan debts. Others may be more lenient and work with consumers whose financial obligations are a few years old. And still, others might not get involved with any accounts that have surpassed the statute of limitations in the borrower’s state of residence.
Debt collectors may begin contacting you about unpaid debt as soon as it is a few months past due. The amount of time that passes before they contact you will depend on the company collecting the debt, how much money you owe, and the type of debt you have.
If you have unpaid past-due debt, your original creditor will typically try to contact you in order to get the account current. For example, if you stop paying an old student loan, your lender will make attempts to reach out to you and arrange for payment. If these attempts are unsuccessful, the creditor will eventually stop trying to collect the debt. This is usually when the transition from the original creditor to debt collector occurs.
Debt collectors will use the information on file to contact you. This may include your current address, phone number, and contact information for your relatives. They may also use personal banking information, such as savings and investment accounts, to determine if you have the money to repay debts. Some states allow wage garnishment to collect old debts.
Reputable Collectors: How Do They Operate?

Most debt collection agencies follow the rules and retrieve money from past-due accounts in a professional manner. However, some agencies use harmful practices.
If you have moved, reputable debt collection agencies will send letters to your new address in an attempt to debt collection. Otherwise, they will send letters to the address you gave your creditor.
Whether agencies send you letters or call, they are required to give you specific details about your debt, including:
- The name of the original creditor.
- The amount you owe (including late fees and other charges).
- Your ability to dispute the debt in question, along with stipulations.
It’s important to know your rights when dealing with collection agencies. According to federal law, they must inform you that you have 30 days to dispute a debt in writing. If you request information about the original creditor, they are required to provide it. If you don’t dispute a debt within 30 days, collection agencies can continue contacting you and attempt to collect payment.
However, companies must operate within certain limitations set by state law, based on factors like what type of debt is owed and where you live. For example, they are only allowed to contact you between 8 am and 9 pm, although it’s possible to receive multiple calls in one day.
As long as collection agencies follow these rules, you shouldn’t experience any harassment or threats. If a company says that police are on their way or that someone is coming after you, they are not acting lawfully.
Fair Debt Collection Practices Act (FDCPA)
The Fair Debt Collection Practices Act (FDCPA) protects consumers from being harassed or threatened by debt collectors. Some of the prohibited tactics include pretending to be an attorney or law enforcement officer, lying about the debt, and making false claims about where the debt came from or how much is owed. Other abusive or deceptive practices are also not allowed.
It’s important to know what your rights are when it comes to debt collectors. Here’s what you need to do if you’re experiencing harmful practices from a debt collector:
- File a complaint with the Consumer Financial Protection Bureau.
- File a complaint with the Federal Trade Commission.
- File a complaint with your state’s attorney general.
- You can also sue a debt collector under the FDCPA for deceptive practices.
Debt Collection: How To Handle It

Entering into debt collections can be a daunting process, but this guide can help you through every step:
- It is important to make sure that the debt you are paying is actually your responsibility. Legally, debt collection agencies have to send you a letter confirming the debt before they can proceed with any type of payment. This step is crucial because it allows you to dispute the debt if there are any errors. The validation letter will also include information about how much is owed, what kind of debt it is, and who the creditor is. You have 30 days to file a dispute if you believe there are inaccuracies in the letter.
- There are typically two options when it comes to repaying debt: a lump sum or a repayment plan. The best option depends on your budget and how much is owed. Before making a decision, calculate how much you can reasonably put down. You may be able to negotiate a repayment plan for less than what you owe, or you may choose to work with a credit counselor or go on a debt management plan.
- It’s time to start making payments on your debt. But before you do, reach out to your debt collector and get a written agreement. This way, you can be sure of the amount you owe and the payment schedule. Once you have the agreement, review it carefully for accuracy. Then, start making your payments. After your first payment, check in with the debt collector to make sure it went through. And keep track of every payment you make going forward.
Does Debt Collection Affect Your Credit?
Even if you’re able to pay off a debt that’s in collections, it can still negatively impact your credit score. This is because your creditor can report the delinquent account to credit bureaus, which will cause your score to drop.
However, there are some instances when debt collections will not have any impact on your credit score. For example, this year the country’s three credit bureaus announced changes to medical debt reporting procedures. beginning July 1, paid-off medical collection debt will no longer appear on people’s credit reports. So if you had a medical bill that was sent to a collection agency and showed up on your credit profile, it will be removed after July 1st.
The credit bureaus have announced that they will be changing the way medical collection debt is reported on credit reports. Previously, any unpaid medical collection debt would be added to a person’s credit report after six months. However, the new policy extends that timeline to one year. In addition, any medical collection debt of $500 or less will no longer appear on credit reports at all.
Final Thoughts
There is now a longer grace period before unpaid medical collection debt is added to your credit report. The timeline has been increased from six months to one year. This means that you have more time to pay off your debt before it affects your credit score. In addition, medical collection debt of $500 or less will no longer appear on credit reports. This is good news for those who have small debts that they are struggling to pay off.
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