When your debt ends up with a debt collection company, you may want to fix a debt repayment plan. However, it is far from always a particularly good plan and it can often be that you get a much bigger debt overall when it comes to debt collection than you initially had. Doesn’t it feel a bit like the debt collection companies kick a little at those who are already down?
I recently read an interesting article that said that sometimes there are pretty crazy payment plans at debt collection companies that make a much bigger and worse debt of a small and really quite affordable debt. With interest and notification fees to be paid, a small debt of just under a couple of thousand dollars in total can mean that you have to pay over $ 70,000, which is then spread over a very long period.
The arrangement that the debt collection companies have is (not always, but in the worse cases) so that you pay the premium and interest in the first place and the actual repayment of the debt comes only in the second. For example, if you have a debt of $ 2000 which has been passed on to debt collection and they set up a repayment plan for you, you may, according to this, pay off the debt for quite some time.
If you have poor finances
Each payment will be small, maybe only $ 100 or similar, but then you must first pay a deposit of about $ 50 and interest on the existing debt of about $ 40. After these costs are added to your monthly cost, there is not much room left for the amortization itself. You may only pay of $ 2 – 3 each month on the debt itself.
In this example, you pay off the debt for almost 700 months, which is around 58 years (!!). This is an absurdly long repayment period for a debt of only $ 2000 or less. Of course, it is conceivable that the person in question has poor finances and cannot pay as much at every moment, but one must still be able to pay off clearly more on the debt than that.
By having high costs for, for example, notice and interest, this eats up the entire month’s payment so that it will not be something of the actual repayment – which is what causes the debt to shrink and you can release it after a while. You then end up in the squirrel wheel and are forced to cut in there almost next to forever as your debt does not disappear and decreases at such a tremendously slow rate.
The Consumer Agency is investigating it all
Right now, the Swedish Consumer Agency is investigating the whole thing through Anne Hedborg and it is from her investigation that this information comes. A proposal from the Swedish Consumer Agency based on this report is that debt collection companies must focus on the amortization of the debt themselves in the first place and that they then can look at interest and other fees in the second place.
By putting more money on the debt itself has several good effects. First, the interest rate will be lower for each payment you make on the debt and if you can then pay more in the amortization, you will receive less interest expense. Secondly, a faster rate of amortization means that the debt disappears faster and then you can also receive fewer notifications and avoid unnecessary notification fees. Overall, the indebted would get away clearly cheaper. However, the question is whether the debt collection company wants it.
Not reasonable that it is this way
Of course, it clearly sounds logical to focus on the debt and not to take so much in the notification fee and interest that there is hardly anything left to pay for amortization. It feels like the debt collection companies would like to milk those who are in this situation and can not get away. Of course, it should be pointed out that not all debt collection companies have as bad repayment plans as in the example above, but they need to be better overall, it feels like.
For those who have poor finances and end up in a bad situation with debt, it is not reasonable to have a debt of $ 2000 which escalates so crazy that you have to pay $ 70-80,000 over 50 years or more. Instead of helping people get on the right foot, they only dig a deeper grave for them. It is basically said that those who have problems are simply doomed and cannot come back. I think that’s bad. You should not go down just because of a few thousand patches!