The Common Terms of Debt Collection in 2024
Debt collection is a process to pursue payments of the debts that are owed by businesses or individuals to the lenders. In a debt collection process, the creditor makes constant efforts to recover the debt amount. The creditor may try to recover the amount on their own or hire a third-party debt collection agency. The debt collectors work for the creditor on a fee structure. The companies dealing with debt collection are often referred to as debt collection agencies.
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First-party debt collection
The first-party debt collection refers to the in-house debt collector team. It is when a company uses its own hired employees or arranges a team for debt collection. They call the debtors as collection attempts and ask for money.
Third-party debt collection
The agencies that creditors contact to recover their delinquent accounts are third-party debt collection agencies. When an account has been written off or charged as bad debts, it is uncollectible by the original creditor. The creditor can now assign the debt collection to someone else who has expertise in recovery. The third-party debt collection agency follows all the federal guidelines and laws. They are paid on a contingency fee basis or fixed fee structure.
Bad debt
Bad debt is an expense type when the repayment by a customer becomes uncollectible. In such cases, most credit has been extended. In other words, the bad debts are receivable but irrecoverable. The creditors, while lending to the debtors, always be prepared for such circumstances as a debtor’s financial condition may change suddenly.
Delinquent account
The delinquent account refers to the account in the state of being in arrears. When someone has a delinquent account, it means he/she is past due on the financial obligations. It means the debtor’s payment is not sufficient to make the creditor satisfied in a timely manner. Financial delinquency often can lead to default if the arrears are not updated. Debt recovery services are then put into use to collect on the delinquent accounts.
Credit score
Credit scores are always calculated using the information availed from the credit reports, including the payment history, the debt amount, and the length of the credit history. A higher credit score means you have shown your responsibility as a debtor and paid the debt at the right time. With a higher credit score, you have higher scopes of further loan approval as the creditors will have confidence in you. A poor credit score leaves the opposite impression of yours to the creditor.
Debt management plan
The debt management plan is an agreement between the debtor and the creditor to address the terms of outstanding debt. It refers to the process of personal finance of individuals to address high consumer debt. It helps reduce the outstanding amount and the unsecured debts over time by helping
the debtor have control of the finances. This process can secure a low interest rate, longer terms of repayment, and overall debt reduction.
Debtor
A debtor, often mentioned as a borrower, is an individual or a company that owes money to a lender. For example, a debtor is one who has taken a loan from a bank for a new car or house. A debtor is contacted by a third-party debt collection agency to pay back the past dues.
Creditor
A creditor, often mentioned as the lender, is an entity or a person who has provided a service or product to another one on credit or has given money at a fixed interest rate.
Conclusion
.These above-mentioned terms are generally used in the debt collection industry. First-party and third-party debt collection agencies are hired by businesses to collect from past-due customers in the most convenient way, operating under FDCPA guidelines.
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