Debt Collecting - A Psychological Approach

Debt collecting is a frustrating Endeavour, because it is so inconsistent in nature.  While one borrower pays, the other doesn’t.  Collecting debt is not easy, however there are a few things that should be taken in mind when it comes to bank debt collection. 

Recent studies have shown that bank debt collectors are starting to take a psychological approach to collecting their debt.  After all, psychology is the study of the mind, so wouldn’t it make sense to want to get into the heads of the borrower? 

In previous years, debt collectors have taken an aggressive approach.  When one was attempting to collect they would do so by calling the borrower’s phone constantly.  This is not the approach that is psychologically sound.  Studies show that people in debt are more likely to pay when they receive a letter vs. a phone call.  This is contrary to what has been previously thought.  The reason for this is because when someone has a piece of paper sitting in front of them they feel more contractually obligated than if they had received a phone call.  The piece of paper also is a constant reminder of the debt, whereas a phone call is brief and soon forgotten.

 

Another psychological strategy that bank debt collectors are taking is to be friendlier to those they are attempting to collect from.  Studies have shown that people are more likely to pay to companies that are kind to them.  It’s also important to offer flexible paying options.  If a collector were to start a conversation with demanding an absurd amount of money for a monthly payment, chances are the borrower will get overwhelmed, and instead of paying little by little, they will pay nothing at all.

When it comes to debt collecting, don’t neglect the aspects of psychological science in your strategies.  By understanding the mind, and how it works, you are better equipped to handle the task of debt collecting. 

Which Kind of Debt is Easier to Collect?

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When it comes to debt there are two main types- unsecured and secured.  These two forms then proceed to break into smaller sections, however for the purpose of this post we will just focus on secured and unsecured.

Secured

Secured debt is explained in its name.  Secured debt is secured by the borrower with an asset.  This asset is what is used for collateral in order to get the money back.  A secured loan has both its positives and negatives for the borrower.  Usually, a secured loan will have a lower interest rate.  The main drawback to a secured loan is that the asset that was put up as collateral could easily be taken if the money is not paid back.  

Some examples of secured debt would be:

• Mortgage loan
• Car loan
• Boat loan
• RV
• Other large loans

Unsecured

Unsecured debt is pretty much the same as secured, except for the fact of not having collateral.  In an unsecured loan the promise to pay back the money is there, however there isn’t the security that you have for a secured loan.  The good aspects of unsecured debt would be its convenient and it’s easy to qualify for. With that being said, the negatives can be quite costly.  Some of the negatives of unsecured debt include high interest rates, and pricy fees. 

Some examples of unsecured debt would include:

• Student loan debt     
• Small bank loans
• Credit card debt

When it comes to collecting debt, it is a little easier to collect secured debt than it is unsecured.  Secured loans are less risky than lending under unsecured loan pretenses.  The reason for this is because the secured debt will have an asset to go after if the borrower doesn’t pay.  This makes secured loans the most sought after form when lending out money.  

Agent or Attorney- Who Gets You More Money?

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So you have some debtors who refuse to pay up, huh? You’ve tried everything in your power to get them to take responsibility for their debts, but they are either unresponsive or they simply refuse to pay you a single cent of the loan they owe you. It’s become clear that if you want to restore cash flow from this debtor’s account, you will need to take decisive action and hire a collection professional to settle the matter for you.

But who should you hire- a collection agent, or an attorney?

For most people, the choice between an agent and an attorney revolves around which professional will get them more money from their debtors. And in just about every case, hiring an attorney is the more profitable choice to make.

Debtors love to ignore collection agents. Debtors understand that collection agents don’t actually have any power in and of themselves. Agents are just normal employees who work for collection companies and have no leverage over their debtors. Even more importantly, a collection agent can’t personally take a debtor to court or levy serious action against them. Instead, a collection agent can only harass a debtor with phone calls and letters.

These days debtors are experts at dodging or otherwise ignoring these annoying attempts at communication, rendering collection agents effectively powerless. If a collection agent wants to take any sort of serious action against a debtor, they will need to contact an attorney.

Only an attorney can provide a debtor with the real pressure they need to begin repayment. If your collection agency needs to hire an attorney to enforce their actions, then why not skip the middle-man and simply hire an attorney from the start? Not only will you save money, but communication from an attorney bears the weight you need to actually see positive action from your debtors.