What Is a Collection Agency and how do they work?

If you’ve fallen behind in your credit card payments, overlooked a medical bill or haven’t paid the rent in a few months, a creditor will hire a collection agency to collect its receivables. A collection agency is a company used by lenders and creditors to recover funds that are in default or past due.

How Does a Collection Agency Work?

There are two types of third-party collectors:

Collection agencies: They collect on behalf of a third party and have to maintain the original creditors collection instructions.

Debt Buyers: A creditor may choose to sell your debt to a debt buyer who could collect it themselves or contract a collection agency to do it.

Debt collectors are persistent and highly motivated. If a collection agency contacts you, don’t assume you can ignore them and they will go away. Instead, you should take a proactive approach and negotiate the most convenient plan with them.