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Collection agencies act in one of two ways; either they are representing and collecting for someone else (usually for large institutions) or acquire them by purchasing the debt. The value of the debt in this case determines its value. The more recent the debt, the more valuable it is.

1st placements are the most valuable costing anywhere from 70-80 cents on the dollar with lower placements also decreasing in value accordingly. Then there’s zombie debts which are debts that have passed the statute of limitations. Meaning collection agencies can no longer sue you for it, but instead resort to questionable tactics in order to stress you out and somewhat “force” you into paying. The debts can go into a bidding process where different collection agencies try to top each other’s offers in order to collect on the debt.

At this point it would be best to understand how collection agencies make their money in order to see why clearly as to why they would be willing to go to extreme lengths in order to collect on some accounts while treat other accounts casually as they would any other.

Collection agencies generally pay anywhere from 3 cents up to 80 cents on a dollar, anything they collect over or above that are already considered profit after they debt has been paid. Generally speaking, most or almost all collection agencies work on quotas or have some type of commission structure in place. How they’re paid basically depends on the person or debt they’re coming after.

With this being said, here’s how it works out for them. Say for example they purchased about $10 million worth of debt which is in the third placement and they ended up paying 30 cents on the dollar. All the information are handed to them (name, telephone number, address, debt amount, etc.) and then fed into a computer which creates the dunning letter. Once the letter has been sent, they start calling you as many times as possible. Once they do get someone on the phone, they will not let you off until they are able to get some form of payment out of you, whether it’s a down payment or a payment in full.

But here’s something to think about, if they, as the example mentioned purchased $10 million in debt, what are the chances they are going to be able to collect on each of those debts? Consumers have the right to request for documentation under the fair debt collection practices act making it even more difficult for them. If your debt for example is below a thousand dollars, chances are they’re not going to have the documentation and they’re not going to spend a lot of their time getting it which means that for most of the time, the issue is going to go away on its own. If it’s over a thousand dollars though, it would be in your best interest to deal with it as they can sue you. In essence that’s how collection agencies work.

Now, in dealing with collection agencies, here are two tips that will help you out greatly:

Tip: If you’re going to negotiate, do it towards the end of the month as collection agents have quotas to beat and will be much more willing to work with you.

Tip 2: Do not negotiate if you cannot make payment in full as collection agencies will not take any form of payment plan or give you any discount as this will defeat the purpose of why they’re chasing after you in the first place.

Knowing the inner workings of how collection agencies work will help you better protect yourself from the kinds of practices that they can pull in order to collect. Because while it may really be a requirement that you pay off your debt, you deserve much more than to be treated in a manner that is both stressful and questionable.