When you are working on repairing your credit, part of the process will involve figuring out how much money you owe and who you owe it to. It can get awfully confusing when several companies show up on your credit report under the same account.
It is important you understand the chain of command when it comes to repaying overdue debts. If you pay cash to the wrong individual you may not be doing yourself or your credit profile any justice.
Navigating the Repayment Chain
When a creditor has sufficiently made all attempts to collect on a debt owned with no success, they are likely to cease their own efforts of collection. However, for the consumer the debt will not die here. In most cases, the original creditor will first attempt to get the money owed to them by hiring a third-party agency to collect on the debt. The debt collection firm will take a percentage of the amount collected on behalf of the original creditor and the creditor will subsequently report the debt to the reporting agencies as being paid but the lateness of the account will negatively affect the consumer’s credit score.
If the third-party debt collector working on behalf of the original creditor is unable to collect the debts owed, the account may be permanently resold to another agency and the creditor will write the debt off as a loss to their business. Once the account has been resold, it usually is picked up by a different debt collection agency which pays a portion of the amount of the consumer debt to the creditor. This agency then becomes the legal owner of the debt.
Once an overdue account is ‘bought out,’ the collection attempts typically become increasingly aggressive. The new account holder is in the business of collecting debts and the debt collection agency will use many high-pressure tactics to get the money owed from the consumer since they have put up their own money to buy the debt. For the consumer, this may mean relentless calls and other contact in order to get payments.
Who to Pay?
When you are reviewing your debts still outstanding based off of your credit report, you can become confused as to whom you should pay to make good on the debt. Having any creditor account transferred to a debt collection agency is bad news for your credit score but you can still successfully make good on the debts.
The key to correctly handling debts that have been sent to collections is to find out who the legal owner of the debt is. This information may not be very clear on your credit report. Typically, if the debt is sold, the original creditor’s account information on the report will be shown as a ‘charge off.’ This shows the creditor is no longer pursuing the debt. You will need to find the name and contact information of the debt collection agency. This will be the company to contact in order to settle your overdue balances.
If you are still unsure as to who you need to pay, you can contact the original creditor and ask if they have the information you need. Most creditors will have specific information as to where the debt was sold and when. If no information is provided or you are unable to confirm the debt reported by the collection agency on your credit report, you can file a dispute with the credit reporting agency who will then investigate the information. The debt collector will in turn need to provide the proof they now are legally allowed to collect on the debt owed.
Paying the wrong person for your outstanding debts may mean you lose money. It is always best to never assume and be sure to confirm how much you owe on the debt and where you need to pay in order to settle what you owe and eventually improve your credit standing and score.
Article Source: http://www.articlesbase.com/credit-articles/who-gets-the-cash-creditors-or-debt-collectors-4679427.html
About the Author
Steve Dowell is a seasoned writer on personal finance, specializing in credit repair. You can find more of his articles located at CreditRepair.org.