After you have missed several payments on a credit card balance or another outstanding debt, the creditor might decide to turn the debt over to a third-party collection agency or debt collector. Creditors do this because it is often more lucrative for them to have a debt collector attempt to collect the money than to try to do it themselves.
According to an analysis firm the Urban Institute, more than 77 million Americans currently have debt in collections, which amounts to 35 percent of Americans who have credit accounts. What that means is that millions of Americans from all over the country are currently dealing with debt collectors.
But just because the situation is common doesn’t make it any less stressful. Having debt in collections can feel shameful and embarrassing no matter how many others are in the same boat. However, what we need to remember is that debt often ends up in collections because of circumstances out of the borrower’s control, such as illness, death or divorce.
A Consumer Debt Counselors adviser said the slowly-recovering economy has also resulted in more debts being sent to collections over the past few years. In addition to high unemployment rates, many Americans have found themselves under-employed and unable to afford the lifestyle they enjoyed prior to the recession.
When Americans failed to adjust their standards of living to match up with their new lower incomes, debt piled up quickly. Bills then went unpaid and eventually ended up in the hands of debt collectors, the debt adviser explained.
Besides the stigma that is attached to having debt sent to collections, it can have many other negative effects on a borrower as well. For example, the damage it causes to the borrower’s credit report can make it impossible to qualify for additional credit such as a home or auto loan. That’s why it’s so important to deal with the debt that has gone into collections right away.
Check back later this week for some advice on dealing with debt collectors.
Source: The Times, “77 million Americans have debt in collections,” Adam Duvernay, September 6, 2014
