The Difference Between a Debt Buyer and a Debt Collector
When you borrow money from a company, you typically only deal with that company as long as you make your monthly payments on time. However, if you fall behind on your payments, your relationship is at stake. Companies typically have outlined the point during a customer delinquency where it’s more cost effective to stop pursuing delinquent debts. That’s where debt collectors and debt buyers come in.
Debt Collectors vs. Debt Buyers
Many people are familiar with debt collectors. They’re the third-party companies that collect debts on behalf of other companies. Debt buyers, on the other hand, are companies that purchase debts from other companies and then step in to collect those debts. Debt buyers may also be collection agencies who collect the debts they’ve purchased or they may assign debts to another debt collector.
Once a debt has been sold to debt buyer, you'll have to work out any payment arrangement with the debt buyer. You no longer have the option to pay the original creditor since they no longer own the debt.
Debt buyers don’t pay very much for debts. They pay a few cents on the dollar for debts, even less for old debts. The less collectible a debt, i.e. debts that are several years old, the lower the debt is sold for since older debts are less likely to be paid. For example, a debt buyer may have only paid $50 for a $1,000 debt. If you paid the debt in full, the debt buyer will have made $950 in profits from the debt.
Debt buyers may purchase hundreds of delinquent debts giving them more opportunities to turn a profit. Even if only a fraction of consumers pay these delinquent debts, the debt buyers can still make money since the debts are purchased for such a low amount.
How Debt Buyers Impact Your Credit
Debt buyers can report your debt to one or all three of the major credit bureaus as a collection account. Once the account is on your credit report, it will stay for the duration of the credit reporting time period. Your credit score will likely be affected once the collection account is added to your credit report.
Paying debt buyer won’t remove the account from your credit report. If you choose to pay, your credit report will be updated to show that you’ve paid. Your credit score may improve over time if you’re timely on your other payments.
Paying vs. Settling With Debt Buyers
Settling for less than the full balance due may be easier with debt buyers. Because they’ve purchased your debt for such a low amount, they can collect a small amount of the debt and still make a profit. If a collector or debt buyer is contacting you about an old debt, it may be worth it to work out a settlement rather than paying the full amount. Keep in mind, however, that you may have some tax liability if your settlement agreement cancels more than $600 of your outstanding debt.
Once you enter a payment agreement, you’ve renewed your obligation to the debt buyer. Making a agreement to pay (sometimes even acknowledging the debt is yours) can restart the statute of limitations on a debt. The statute of limitations is the amount of time that a debt is legally enforceable. After the statute of limitations has passed, a company cannot use the court to use you. Entering a gives the debt buyer more time to sue you if you fall behind on the debts again.
How Do You Know If a Debt Has Been Sold?
Your original creditor isn’t required to let you know they’ve sold your debt to another company. You may not find out until you receive a letter from a company informing you that your debt has been purchased or acquired.
If you receive a letter asking that you pay a debt, you have the right to ask for verification of the debt. You can request that the company send you documentation showing that you agreed to the original debt and that they now have the legal right to collect that debt from you. A company that cannot prove that you owe a debt does not have the right collect from you, that includes listing a debt on your credit report.