How Can I Consolidate Collection Debt?
When an owing balance has been delinquent for a significant amount of time, the debt is typically sent to debt collectors. This service is usually offered by third-party companies that’ll attempt to use phone calls, mail, and sometimes even in-person visits, to get borrowers to pay off their debts.
Having debt sent to collections can be a very stressful time and the constant phone calls and messages may even at times seem like harassment. Luckily, there are several options available to those who’ve had overdue accounts sent off to collectors, the most important of which being debt consolidation.
What Does Debt Collection Involve?
Debt collection is a debt recovery service that attempts to have borrowers pay off their overdue and delinquent balances. Typically speaking, once an account has undergone several missed payments, the creditor will contact a credit collection company that will then attempt to collect on the debt.
Sometimes, collection agencies simply receive a percentage cut of whatever debt they collect. Other times, the agency may outright purchase the delinquent debt from the original lender, with hopes to collect on the debt and turn a profit. This usually happens when the lender has written off the loan as a cost of doing business. The debt is sold for a fraction of the total owing amount.
When debt is sent to collections, it means the borrower has essentially defaulted on their loan, something which can cause a major hit to their credit score. Having debt sent to collectors is one of the worst things that can happen to one’s credit score. If this does occur, the individual in question must try and pay off the balance as quickly as possible to stop any further damage to their credit score.
Why Repay Collection Debt?
First and foremost, collection debt should be repaid because failure to do so can wreak havoc on an individual's credit score. Secondly, most debt management and collection services have fairly aggressive methods, meaning the borrower can expect a steady stream of calls, messages, and even personal visits until the debt is paid off. No one wants to live this way, and paying off the collections debt is usually one of the only ways to bring an end to collection efforts.
How Can Debt In Collection Be Consolidated?
Perhaps the most common solution, a consolidation loan allows individuals to clump all outstanding debts into a single monthly payment. This solution can be particularly useful for people who’ve had high-interest credit card debt sent to collectors since a consolidation loan would carry a significantly reduced interest rate compared to most credit cards.
- Can Stop Collection Efforts: Using a consolidation loan to pay off unpaid balances can stop any credit collection activities being taken against the borrower
- Reduced Interest Rate: Depending on the nature of the debt that was sent to collectors, a consolidation loan can offer a significantly reduced interest rate
- Ease Of Payment: Those who’ve had several debts sent to collection agencies will enjoy the simplicity of having only a single payment to worry about
A debt Consolidation program involves working with a debt counselor on a debt repayment plan. Typically, these companies will negotiate with the collectors hoping to receive a lower interest rate or, at times, partial debt forgiveness for their client.
Once an agreement has been reached, the borrower must enroll in the debt consolidation program, agreeing to make monthly payments until the debt is paid off.
- Reduced Cost: Credit Counselling agencies usually have special relationships with credit collection companies and are therefore able to negotiate a reduced rate and may even be successful in securing a balance reduction
- Offers A Plan: Because the borrower is presented with a concrete plan, they have a clear understanding of what will happen in the future, offering peace of mind and removing an uncertainty they may have
Most credit cards offer balance transfer promotions in which any transferred balance is subject to a 0% APR for six to 12 months.
- Significant Savings: Because the transferred balance isn’t subject to interest rates, all payments will go directly to paying down the balance
- End Of Collection Actions: When the balance is transferred to a new card, the debt is no longer in collections and all collection efforts will cease
Can Debt Settlement Also Help?
Depending on the size and nature of the debt, borrowers can try and negotiate with agencies for a reduced total balance. Many agencies may be motivated to reduce the owing balance if it means the balance will be paid off in full.
Read More: Debt Settlement vs Debt Consolidation
Any debt that’s been sent to collections requires immediate attention. Failure to do so will result in major damages to one’s credit score. Taking advantage of the strategies listed above is the best way to ensure that debt is paid off and one’s credit score can begin to recover.