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How Do Collection Agencies Collect Debt? Debt Collection Methods

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Debt collection agencies collect all types of delinquent debts, including credit card, loan, medical, and student debt. Some agencies specialize in specific debt types, while others provide services for many different categories.

What Is Debt Collection?

A collection agency employs debt collectors to contact and collect delinquent debts on behalf of the creditor. It is common for agencies to operate within a specific field of collection. For example, many services only collect above certain dollar amounts and/or within specific time frames (such as collecting debts that are a minimum of $400 that are less than two years old).

Collection agencies may also negotiate settlements with consumers, or refer cases to lawyers in the event of a lawsuit. The statute of limitations on a debt varies from state to state, and a reputable agency will work to only collect debts within that statute of limitations.

What Are Common Debt Collection Methods?

Most often, collection agencies communicate with delinquent borrowers via phone calls and letters. If the collector cannot get in contact with the debtor, they may investigate further to determine how to contact the person as well as the debtor's ability to repay the debt.

Collection agencies have the ability to report delinquent debts to credit bureaus, which encourages payment because delinquent debts can wreak havoc on a credit score. However, debt collectors must be paid by the debtor and are unable to take money from a bank account or paycheck directly unless there is a court order, which must be given before the statute of limitations has run out. But even then, the collector still has to request the money from the debtor's bank.

Debt Collection Legitimate Practices

A reputable collection agency ensures it obtains complete, accurate records to avoid pursuing anyone that doesn't actually owe money to the creditor. If you are contacted about a debt caused by identity theft, the agency will make the effort to have your claim verified. No agency should ever harass or threaten you based on your age, gender, race, or any other factor. Reputable agencies do not try to deceive you in any way to collect a debt and none of them will publicize your debt.

Collection agencies must follow the Fair Debt Collection Practices Act (FDCPA), which limits how they are able to collect a debt and protects consumers from abusive, deceptive, and unfair practices.

A collector should always be fair, honest, and respectful when contacting debtors. If you request a written verification of the debt you have been contacted about, the collector needs to suspend collection activities and supply you with written verification of how much you owe, who you owe it to, and how you need to pay it.

If the debt cannot be verified, the company will stop trying to collect. In the event that the agency is working as a middleman for another creditor, they will let the creditor know that the debt could not be verified.

A collection agency also has the ability to alert credit bureaus that the debt is disputed or request that it be removed from your credit report. They must also operate within specific time limits and cannot send a validation letter later than five days after first contact with a debtor or report on a debt that is older than seven years.

How Much Does Hiring a Debt Collection Agency Cost?

It is difficult to provide an exact cost for hiring a collection agency, as many factors impact price. The biggest price factors include:

  • The amount of the debts you need collected
  • The volume or number of debts you need collected
  • The agency you hire

What follows is a general pricing guide based on industry averages to give you an idea of what you can expect to pay when hiring a debt collection agency.

  • Some debt collection agencies charge a flat fee upfront for a fixed number of accounts. These fees average in cost between $10 and $15 per account.
  • Most debt collection agencies charge for their services as a percentage of each collection, which averages between 20 and 50 percent. Older accounts typically come at a higher percentage, because older debts are more difficult to collect.

It is important to note that there are agencies that charge for any costs they incur while collecting, as well, such as background checks or long distance fees. Always be sure to see a complete list of an agencies rates and fees before making your final decision.

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