Businesses in Settlements: Creditors, Collectors, and Junk Debt Buyers
By LaToya Irby in Debt Relief
In the debt settlement process, you may deal with a number of different businesses. It’s not always easy to tell who you’re working with, but it’s important to know because it could affect how low you can expect to negotiate your debt. Creditors may push for higher settlements, while junk debt buyers may accept just a small percentage of the outstanding balance.
The Original Creditor
The original creditor is the bank that issued you the credit card or loan. When you first go delinquent, they’re the ones you’ll typically deal with. You may only have a limited time to deal with the original creditor because after several months of non-payment, they may assign your debt to a collection agency or sell it to a junk debt buyer.
The original creditor may offer a settlement after you’ve become delinquent or you can make a settlement offer to the original creditor. Many people miss the opportunity to settle with the original creditor and avoid a charge-off because they don’t have enough money saved up so early in the collection process. Settlements with the original creditor can be more expensive than those with a collection agency.
Junk Debt Buyers
Junk debt buyers are companies who purchase old debts from the original creditor. They often buy these debts for very little money – often just a few pennies for every dollar, or maybe even less if the debt is really old. For example, a junk debt buyer may have paid only $10 – $50 for a $1,000 credit card balance. If they get you to pay just $100 on that account, they’ve made double the money. Since junk debt buyers generally pay so little for the debts, you probably have the biggest opportunity to settle for less once they’ve bought your debt.
Once the account has been sold to a junk debt buyer, you can’t deal with the original creditor anymore because the creditor no longer has rights to that debt. Instead, they’ll refer you to the debt purchaser.
You may deal with two types of collectors. Your original creditor has an in-house collection department that will contact you about your debt. This collection department will typically contact you for a few months before and after the account has been charged-off. If the in-house collection agency is unsuccessful in getting a payment from you, the account will likely be assigned to a third-party collection agency or sold to a junk debt buyer who may also assign it to a third-party collection agency.
Third-party collection agencies are collecting debts for someone else – either the original creditor or a junk debt buyer. They get to keep a percentage of whatever they’re able to collect from you, so they want to collect as much as possible. Third-party collectors often have guidelines from the creditor or junk debt buyer on how much they’re allowed to settle the account for. They may even offer a settlement outright, but you can always try to negotiate a lower settlement. The lower the better.