Making Debt Payment Arrangements

The primary focus of a debt collector’s job is collecting payments. Negotiation for payment of the debt ensues upon contact with the borrower. There are numerous reasons for delinquency, and listening skills are critical in the negotiation process. Through active listening, it is possible to determine what resources are available to the borrower for resolving the delinquency. Since the best possible outcome is complete recovery of the debt, the goal of the debt collector is to resolve the delinquency on first contact.

Resolving the delinquency on first contact is important because in debt collection, everything is time sensitive. Statistically, the older a debt becomes, the harder it will be to collect. Not only is that an issue, there are set times when certain actions will occur, such as charge-off, which affects the reportable assets of a lender. Add to that the statute of limitations, which mandate the time allowed for the collection of a debt, and it becomes apparent why there is emphasis on quick resolution.

In many cases, outright recovery of the debt is not possible on first contact. When this scenario occurs, it is necessary to create a payment arrangement, where the borrower agrees to a set term of payments in order to resolve the delinquency within the guidelines set by the collection department or agency. When the debt is still with the original creditor, but in a delinquent status, the focus of the arrangement is to resolve the delinquency in the shortest amount of time in order to bring the account current and back to good standing. When the debt is a charge-off, and especially true with third party collections, the balance is due in full, and the focus is to obtain the balance in the least amount of time possible.

A debt collector will deal with several payment methods. The most popular methods are checks and credit cards. Some agencies will also use Money Gram or Western Union as well. Bank wires are also a payment method. Some collectors take payments directly in cash, if the borrower is local and walks their payment into the office, although this situation is rare.

There is often a possibility to settle the debt for less than the balance owed. Settlement is a bargaining tool in order to resolve the delinquency in the shortest time possible. Settlement negotiation takes into consideration the settlement authority granted by a client. This authority provides the lowest amount that they will settle for, which is a percentage of the balance owed. Typically, in settlement negotiation, a debt collector will attempt to obtain the highest amount possible, even though a lower amount is acceptable. This is especially true of collectors who are eligible to receive commission from the amount they collect.

Settlements are usually due in full. However, there may be the possibility to split the settlement up into multiple payments, depending on what the settlement guidelines for a particular agency or client are. Best practice is to obtain the settlement in one lump sum payment. In the case where the debt is very old, and the statute of limitations to collect the debt are almost up, a very low settlement will be offered in the hopes that at least some of the money can be recovered. This is usually true for debt purchasers, who will bulk mail settlement offers to the accounts in their portfolio in the hopes of obtaining a profit on their investment. Other strategies may include actual incentives for payment of debt, such as gift offers, or a secured credit card offer where, once secured with a deposit, the credit card becomes the method of payment for the debt.

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