Driven by the poor economy, consumer debt continues to rise, growing 3.4 percent in just the past six months, according to a Federal Reserve report. While unpaid debt is a problem for individuals, it also creates a drag on businesses from Main Street to Wall Street, including banks, other financial institutions and the real estate industry.

In short, unmanageable debt loads, delinquencies, foreclosures and bankruptcies continue to undermine a meaningful economic recovery.

Unpaid debt translates into higher costs of doing business and straps governments, leading to higher taxes. The Federal Reserve estimates that unpaid debt costs every adult in the United States $683 annually. Real estate, finance and banking industries are facing a two-pronged problem. They are absorbing more expense to collect on less liquid debts owed to them, while consumers are less able to borrow money for a home or business because credit is either less available or prohibitively expensive.

What’s more, there’s no immediate end in sight. More than 25 percent of those aged 46 to 64 have no personal savings. Young adults are struggling, too. The moribund job market, combined with student debt – expected to exceed $1 trillion in 2012 – have added to widespread non-payment of debts.

Against this dismal backdrop, businesses and institutions are turning to professional debt collectors for help. In many cases, they have tried and failed to resolve debt issues on their own. Some owners of receivables use collection agencies that collect the debt on the owner’s behalf.

They may also elect to monetize their receivables to free up capital for additional lending or to reduce their operating costs. They achieve this by selling the debt at a discount to a debt buyer that endeavors to collect the debt on their own behalf. Many types of companies, including banks, credit card issuers, auto loan companies and utilities take advantage of the benefits of selling their accounts to debt collection experts.

Bad Apples

The debt collection industry’s reputation has been tarnished by a few bad actors that represent the exception to otherwise professional and lawful collection practices. The reality is that reputable collectors can be a part of the solution to America’s mounting debt crisis, for both creditors and debtors.

Debt collectors help businesses and municipalities mitigate their financial losses. Collection agencies are responsible for recovering $58.8 billion annually, according to the Federal Reserve Board and the United States Census Bureau. This money helps increase the availability of credit and lowers its cost for creditworthy borrowers.

Collectors can also play a constructive role in helping individuals and families resolve their debt issues, putting them on more stable financial footing. A debt purchaser’s collection approach is oftentimes much more patient and comfortable for consumers, since it often includes longer time options for debt repayment, flexible minimum payments, and low or no interest accrual. In this way, debt buyers provide a responsible plan for people seeking to reduce their debt and get a fresh start.

Key to a successful resolution, however, is the ability of debt collectors to contact and negotiate directly with debtors. Attempts to limit that flexibility through legislation or legal action are often counterproductive. With their options limited, collections agencies may have no option other than to sue debtors.

Bad debt negatively impacts the costs for consumer and business borrowing, as well as product costs, burdening those who don’t pay their bills along with those who do.

While debt collection agencies can’t solve the bad debt problem by themselves, they can help reverse the downward spiral in which many people, businesses and municipalities find themselves. Far from being part of the problem, established, ethical debt collectors can be an integral part of the solution, promoting financial accountability while enabling banks to provide lower-cost and more available credit.

Christopher Graves is the senior vice president of core acquisitions at Portfolio Recovery Assoc.