When you don’t pay your debts you are likely to become a liability to your creditor. After phone calls and letters do not elicit payment of an outstanding account, a frustrated creditor could hand your account over to a debt collections agency.

These are organisations dedicated to collecting the money owed to your creditors, and therefore they’ve got the time and energy to more closely pursue the matter. The creditor can either assign the task to them, or sell your account to them. Either way, it’s not good news because firstly you will never escape the debt collections focus, and secondly this not-so-secret history may seriously affect your credit rating.

When debt collection is on your tail

  • Companies don’t have to think too hard about the decision to hand you over to the debt collector; it’s more cost-effective both financially and time-wise than spending their own resources chasing delinquent accounts.
  • Before debt collection takes over the account, you may have some time to rectify your situation – but be aware that different creditors have different timelines of leniency. When opening accounts, loan agreements or credit card accounts, make sure you review the small print in these agreements. Some creditors may give you a few months, others may only allow one or two months of missed payments.
  • After the phone calls and letters from your creditor, you can expect the same from your debt collector, who may even call you at your place of employment – but they may also send your name to the credit bureau, and getting that situation cleared can mean a whole lot of trouble for you.
  • You are entitled to request validation of the debt and you have 30 days to do so. Requesting validation forces the debt collector to provide proof that you owe the debt.
  • If you withhold contact details from a debt collector or any notification of a change of those details, then the debt collector has no way of notifying you of the registration of your name with the credit bureau – and therefore the first you may know of the problem is when it is shown listed on your credit report.
  • Once your name is with the credit bureau as a bad debtor, it can affect various spheres of your life, particularly if you are looking for a new job, or you wish to take on more accounts at a retail store, or buy a car or a house.
  • Having a debt lodged against you at the credit bureau means your credit score may drop by a substantial amount. The degree to which a collection hurts your credit score depends on how high your credit score might be before the debt is reported. The higher your score, the more points you can lose.
  • The damage to your credit score is influenced by the amount owed. Both the value of the debt and the type of debt will influence your credit rating. Smaller debts may be less significant, and positive differentiation would be made between medical and non-medical debts. As debts are paid, your credit rating can improve.
  • When trying to obtain a loan or a credit card, it’s wise to check your credit rating first. This can ruin any financial plans you might have, so it’s important not to allow the ratings bureau to take charge of your life.

Dealing with debt

  • If you believe that the debt held against you is accurate, you should set up negotiations as soon as possible to find a strategy and plan to settle the debt.
  • If you can prove that the debt is not correct, or you can show that you are making a real effort to pay your debt, this can be helpful in improving your credit score overall.
  • Keeping all your other accounts up to date is also beneficial in reducing a credit rating that is not conducive to assisting your financial standing.
  • As time passes, the account in collections may have a less significant impact on your credit, especially if you can show that the debt is being handled, and there are no other outstanding accounts.

Debt collections and your credit report

Your credit rating is a record of everything you owe, such as retail accounts, credit cards, loans, etc. Your creditor will send monthly updates on what you have paid, or have not paid, so this record can, after a while, look rather bad for you. A debt collections agency, when instructed by the creditor to take care of settlement, will immediately go to your credit rating and update it with a ‘collections’ status, which is also bad for you, because this shows clearly that your account is delinquent.

Your creditor doesn’t have to tell you that they’ve put your account into professional hands for settlement, and the first you may know is when the debt collector contacts you. Your credit score may drop if this happens to you, and your ability to buy on credit, apply for a credit card, or raise a loan or a bond, will be severely compromised.

Debt collections accounts can stay on your credit report for a long time, and the only way to fix this situation is to find a way to pay off your debts – or raise a successful dispute with the credit bureau. Keeping all your accounts up to date and paying off a nagging debt with the advice and guidance of a debt collections agency is the best way to fix a bad situation and stay out of trouble.

LegalTrack – how we do things differently

At LegalTrack we work with real people with real problems and therefore we apply a highly considerate and respectful approach to debt collecting. We understand that we need to be firm, but we are also aware that to negotiate successfully with an individual who is already in a difficult financial position, we need the skilful combination of empathy and experience, backed by well-honed communication capabilities. Our modus operandi is simple, direct, efficient:

  • Our first contact is via an SMS.
  • This is followed by a phone call to begin the negotiations on how the debt will be paid.
  • All payment arrangements/negotiations are confirmed via letters, emails and text messages.
  • Our promise is to constantly keep contact with our debtors in terms of all arrangements.
  • Any legal action is considered the last option.