Why might your creditors rather work out a payment plan with

Question:

Why might your creditors rather work out a payment plan with you than just send your debt to collections?

Answer:

1. Avoid damaging your credit score

Creditors know that when they send your debt to collections, you will soon suffer a damaged credit score. The decreased credit score will harm your future success rate of getting credit loans. To cushion you from such risks, they opt for a workout repayment plan with you.

2. Maintain positive relationship

Even though you have defaulted on a payment on your credit card, lenders know they will need you in the long run. To avoid breaking relationship because of short-term troubles, coming out with an alternative payment plan is considered.

3. Avoid extra cost

Sending debt to collections is related to many costs. This may come in the form of commissions that an agency may demand. To avoid such commissions and other fees related to debt collection, it is more cost-effective to draft a new repayment plan.