Debt Collection vs Debt Management

24
July

When the telephone rings, do you cringe and hope it’s not another debt collection company? Debt collection can be stressful and upsetting. For many people, the difference between debt management and debt collection is the ability to control your financial destiny and answer the phone without crossing your fingers that your blood pressure won’t be through the roof when you finish the call.

Debt Collection

If you are behind on credit card or other credit account payments, you have probably received at least one debt collection telephone call. Credit companies vary in how far you have to be behind in your payments before they turn your account over to a collection company, but once this happens, it becomes more difficult to resolve your credit problems.

Debt collection companies are regulated by the Federal Trade Commission. They are legally limited to the hours they can call and what they are allowed to say to you. They are not allowed to treat you disrespectfully or threaten you or your family. They are allowed to record conversations and they must identify themselves as a debt collection company. They are not allowed to reveal information about your financial accounts to anyone except you.

Many debt collection companies will offer options to pay off your debt, including lump sum payments and monthly payments. Keep in mind, however, that credit collection companies make their money by charging fees for their services to their clients – your creditors. They are less willing to accept debt settlement agreements that reduce your debt or for less than the original debt amount.

If you have an account reported to a debt collection company, it will be negatively reflected on your credit report. The more accounts you have in collection, the lower your credit score will be, making it extremely difficult to get a mortgage, car loan, auto insurance and even a job offer. Ultimately, this fact alone can be enough to encourage you to avoid letting accounts fall behind and go into collection.

Debt Management

Debt management, by contrast, allows you to remain in control and can actually result in positive marks on your credit report. Debt management is the process of making sure you pay off your credit accounts and avoid further debt.

Even if you are behind on your credit cards and other accounts, you can work with creditors to find ways to avoid going into collection. You may be able to negotiate lower interest rates or a few months of temporary interest relief, which may make your payments more manageable.

Debt management also means developing and following a realistic budget. By keeping careful track of your money each month, you will be able to make conscious choices about where you spend your money, including making a commitment to paying off your debts. You can develop a plan for paying off smaller credit accounts, working your way toward eventually becoming debt-free.

As you make regular monthly payments on time, your credit will reflect your efforts. Instead of numerous negative marks for late or missed payments, your accounts will show you make your payments on time, in the amount due every month. Additionally, as you reduce your debt amounts, your debt-to-credit limit ratio will improve, which also improves your credit rate.

Debt management requires a commitment to reducing credit balances and discipline. If you are managing your debt, you must make conscious choices about how to use credit and taking on debt. Additionally, it can be challenging to live within a budget. However, with concentrated efforts, you will find that your credit scores improve and your debts become easier to control. Managing your debt means avoiding the stress and negative impact of having accounts go into collection, which is healthier for you all the way around.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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