You risk having your account forwarded to a collection agency if you default on a credit card, loan, or even your monthly internet or utility payments. These companies are employed to go after a company's unpaid debts. Even if your debt is turned over to a collection agency, you are still responsible for it. Many consumers refuse to pay collection agencies, possibly because there is no immediate benefit to paying off the debt—other than the debt collection calls stopping. However, before you decide not to pay off a debt in collection, be sure you understand the implications of doing so.
The Effects of a Credit Report
Debt collectors submit accounts to the credit bureaus, which can have a long-term influence on your credit score. If the overdue amount is for a credit card or a loan, your credit score will suffer and may already have suffered. By the time a collection account is opened, the late payments and subsequent charge-offs that often precede it will have already hurt your credit score. While paying a collection notice isn't the most thrilling way to spend your money, there are some advantages to paying off the debt. You can stop the collectors from harassing you, and a paid collection appears better on your credit record than an unpaid one, which is important when applying for new credit. It's a good idea to check your credit report on a regular basis for any account collections that don't belong to you, but if the collection is really yours, it's usually best to pay it and move on.Calls from the Collector
A debt collector's job is to persuade you to pay your debt, and they don't make money unless you pay your bill. Debt collectors will harass you with phone calls and letters until you pay up. Paying the original creditor may no longer be an option if a debt is in collections. You'll have to figure out a payment plan with the debt collector. You can, fortunately, stop debt collector calls by writing to them and requesting that they stop contacting you. Be cautious, because some debt collectors disregard the law and continue to contact you regardless. One of the reasons debt collectors receive more FTC complaints than any other industry is because of this. A debt is usually sent to a collection agency for a few months. If you don't pay within that time, the debt may be transferred to a new collection agency. The practice is repeated multiple times, sometimes over a period of years, until you pay up. You'll probably need to submit a new cease-and-desist letter to stop the calls or a new debt validation letter to force each collector to verify that you own the bill because the debt is passed around from one collector to another and they don't share records.Marks on credit reports
Debt collections are a major delinquency that alerts other creditors and lenders that you haven't always followed through on your payments. Because you are considered a higher-risk borrower, some of your new credit applications may be denied. If you have unpaid debt collections on your credit report, you're more likely to be denied a mortgage. Whether or not you pay the collection, it will remain on your credit report for the whole credit reporting period. After that time period has passed, the collection will be removed from your credit report. You'll still owe the bill, and the collector can still pursue you if the amount is still within the statute of limitations, but the obligation will no longer appear on your credit report.Interest Rates That Are Unfavorable
Because of a collection on your credit report, not all applications are declined. You might be authorized, but you'll have to pay a higher interest rate to make up for the higher chance of default If your credit card has a high interest rate, paying off your debt in full will save you money on financing costs. Other services, such as cell phones or cable, may require you to pay a security deposit up front. On a more positive note, if you pay on time each month, your deposit will be reimbursed or applied to your account.Job Search
Some employers run credit checks on potential hires. A collection on your credit report might make it difficult to get hired, especially for financial or upper-management positions. Employers must obtain your written consent to access your credit history as part of a background check. 8. You might decline permission, but this is unlikely to improve your candidacy any more than a bad credit report. Employers are also required to provide you with a copy of your credit report when rejecting a loan application, just as lenders are required to do when rejecting a loan application.Lawsuits
Collectors have the legal right to sue you for any sum owed to them. They can also ask the court to garnish your salary to enforce the verdict if they get a judgment against you. Even if you believe your obligation has passed the statute of limitations, don't ignore a lawsuit summons. 9. If you're being sued, talk to an attorney about the best course of action. In addition, each state has its own set of debt collection rules. This is one of the reasons why you should obtain excellent legal advice if you are contacted by a debt collector.Frequently Asked Questions (FAQs)
What is the deadline for paying a debt collector
You should pay as quickly as possible if you are aware that you owe the amount and that collection efforts are ongoing. You face the danger of being sued for the debt if you wait too long.Will a loan in collection ever be paid off
Although a debt does not literally disappear, each state has a statute of limitations on how long it can be recovered. Your debt will be considered time-barred once that date has passed. A debt collector may contact you about the debt, but due to the time limit, they are unable to sue you for the debt.Will paying off a bill that has been placed in collections boost my credit
Unless your debt is time-barred, in which case it will not appear on your credit report, paying off debt in collections will boost your credit. Other criteria, such as if you have other collection accounts, will influence how much your credit improves.