Debt collection is a business in which collection agencies buy up debt from other businesses, such as credit card companies, for pennies on the dollar. Those companies then try to collect the debt. Debt settlement is a process that allows consumers to avoid bankruptcy by settling debts with lenders or collection agencies for a negotiated percentage.
Collection Tactics
Most collection agencies have people who call debtors in an attempt to coerce them to pay back their debts. Often the callers are working on commission and there is high staff turnover, so the industry is prone to unscrupulous tactics.
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA) forbids debt collectors from engaging in certain practices such as calling at inconvenient times, calling debtors at their place of employment, and using profane and abusive language, to name a few.
Debt Settlement
Debt settlement can be done by consumers or by third-party companies. It is a process in which the debtor or his representative attempts to negotiate an agreement in which a lower percentage of the total amount owed to the collection agency is paid.
The Age of the Debt
As debts get older, they are considered less likely to be collected. Therefore, they can be settled for less. If debts get too old, the statute of limitations may prevent their collection. Statutes of limitations vary by the type of agreement for the debt in question and by state.
Impact on Credit Score
Settling debts can help you avoid bankruptcy but will still impact your credit score. Collection accounts are negative marks on your credit, and there will probably be negative remarks in the trade line on your credit report if you do not pay off the debt in full or negotiate a deletion.
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