When Your Account Goes to Collections
Sometimes we lack the financial means to take care of a payment when it’s due. Or maybe we receive a bill and forget about it, or maybe you fell victim to your stubborn refusal to go paperless and your bill got lost between switching addresses.
Either way, it’s serious business when your debt goes to collections. It’s not an uncommon scenario, and it’s not a fun one either. Because when an account goes to collections, it can cause significant damage to your credit standing.
If you do find yourself in this situation, it’s important to deal with it sooner rather than later.
When does it go to collections?
If you cannot repay or settle your existing debt, if you fail to set up a repayment schedule to resolve the amount, or if you simply ignore creditor’s attempts at reaching you, then you could find your loan getting turned over to a collection agency. In this situation, your debt will be reported to the credit bureau, which usually takes 3-6 months after you default on a loan. Credit card and telephone debts are especially common types of debt that get turned over to agencies. It’s ideal to pay off collection debts right after they are issued; this prevents any further damage to your credit score and means you don’t get any more scary phone calls or threatening letters in bold font – those are never fun.
What do I do if my debt goes to collections?
Depending on what your creditor decides to do, they may turn it over to an agency with a contract to collect, or they may sell the debt to the agency. In the first case, this is when the amount becomes an assigned debt, and agencies will immediately try to get in touch with you in order to get back their money. In the second case, such a transaction between the creditor and collection agency is called ‘purchased debt’. Before you do pay up, make sure that the debt is validated: only agree to a debt payment once the collector proves with sufficient evidence that you actually owe money.
Will the debt go away?
Sometimes, yes. Depending on where you live and the laws in place, after a certain number of years you may no longer be liable for certain types of debt. However, other types of debt such as student loans, taxes, and judicial debts don’t disappear over time and need to be dealt with.
What happens when I pay the debt?
Lump sum payments are recommended in the case of a collection debt, rather than negotiating a payment agreement. Paying off the amount in full will show up differently on your credit report than if you decide to make installments, and will fare better for your credit score in the long-term.
Remember: once you finish paying off your debt, the amount and history will be kept on your report for seven years and marked as paid. The negative effect of having it show up on your credit report will fortunately decrease over time.
If you’ve been struggling with paying off your debt and finding auto-financing options that work with your poor credit score, take a look at what BC Drive can do for you. We work with all credit standings – good, bad, or poor. We’ll get you the car you deserve, not the car you should settle for. It only takes five minutes to apply and you can be driving off the lot with a new car the next day.