Outstanding debts are not only burdensome, but they can also lead to a plethora of adverse consequences on your financial state. The accounts in your credit report that are collections accounts reduce your credit score hence have a difficult time being approved for loans and credit cards. The remaining balance does not stop accumulating due to the late fees and interest thus the chances of it rising beyond one’s ability to pay are very high.
It is quite typical to wonder if it is reasonable to pay off a debt that has been sent to collections or to simply let the matter go. Below is a breakdown of some of the factors that need to be taken into account before deciding whether to pay the collections or not.
The effects of collection on your credit
Nevertheless, to assess whether you have to pay, you should first discover what collection accounts mean. An original creditor can write off your account meaning they will no longer attempt to collect the debt from you directly, but instead, the account is owned by a third party. The collection agency then makes attempts to collect the money from you.
If you have some collected debts in your credit report, these will remain present in your credit report for up to 7 years starting from the time the collections account is reported. It not only remains on your credit report unpaid but also greatly reduces it even with the immediate payment. A single collections account is powerful enough to pull down the credit score by more than 100 points.
This is true because even when you pay off collections, it is likely that your credit score will be higher than it would have been if you did not make the payments.
With such a big dent in your score, one may be forgiven for thinking that it is pointless trying to get the collections off your credit report. Essentially, while paying off collections is potentially advantageous in enhancing your credit score – if done correctly.
However, if you merely send money directly to the collection agency, they may just stop calling and even cease reporting it to the credit bureaus. However, if the negative collections account is still an active account, it will appear on your report. This does make your credit situation a bit better but again, the harm is still done.
To obtain the maximum credit benefit on collections accounts, you should always use pay for delete while negotiating with the credit bureaux. This requires bargaining with the agency to get the account expunged from your credit reports in return for the debt balance. As far as the history of the collection is concerned, your score is capable of being more than making up for itself.
Self-collection removal can also prove to be very difficult. However, although some information is still collected by debt collectors, you cannot expect them to remove accurate information from your credit reports. But, as it will be seen, consumer laws do provide you with some ounce of protection.
According to the Fair Debt Collection Practices Act, it is noted that if one pays the money collector even if partially the period of limitation starts all over again. The statute of limitations is a specific timeframe within which the collector is allowed to sue you for the money. In effect, whenever you make a payment, you are extending this time frame.
Due to this rule, the collector is allowed to come after you and take away the collection right to use the legal system to collect the debt if you make any payment. Thus, you can use it as a tool in bargaining to have the debts removed in exchange for money. Try asking to pay some amount of money just so that your account will not be reported to the credit bureaus. In the beginning, it is important to state a relatively low price for your services to get more bargaining power by paying at least 20 cents on the dollar.
Another legal aspect that deserves consideration is the benefits and drawbacks of paying collections.
Is it even wise financially to pay off old collections accounts just to enhance credit rating? To decide, weigh the pros and cons: To decide, weigh the pros and cons:
Pros
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Increase credit score quickly: Any unpaid dues have a very detrimental effect on the scores and hence when you begin to pay the debts, your rating is improved.
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Better approval odds for credit/loans: This way, with a good credit score, the loan comes with lower interest rates in the market.
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Peace of mind: Erasing debts by paying them gives a feeling of relief.
Cons
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You reward the collector: As much as they are rude to you and then threaten and demand their money they end up being paid.
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The debts may reconnect: Sometimes, paying a debt means restarting the period for filing a lawsuit to recover the money, which allows collectors to sue over debts that are quite old.
- Out-of-pocket costs: Paying a significant amount of money all at once to pay for collections is not something that can be done by forking a few coins.
It may help to evaluate, on balance, your specific circumstances with these considerations in mind. This is about the age of the debt. What’s the dollar amount? Is it more valuable for you, the user, to eliminate the collections entry than it was for you to pay for the costs incurred?
Collection Strategies for Their Debts If You Can’t Pay
If one cannot afford to pay collection accounts accounts now, there is still hope. Here are some alternative ideas to help handle collections debt:
Here are some alternative ideas to help handle collections debt:
Negotiate a payment plan: If they are unwilling to agree to delete in return for a single payment, ask if they would prefer to make the payments gradually. Remember, if the arrangement has not been put down in writing and someone asks for money, do not send the money.
Dispute invalid collections: Are they fake or was it a case of mistaken identity or billing fraud? Remind the credit burezo and collections agencies to dispute the entries citing this. Ensure that you can support your dispute with the necessary evidence.
Ask collectors to recall accounts: If a collection is validated but you cannot afford to pay at present, ask that the agency that reported it to the credit bureaus remove it for a temporary period. This temporarily puts on hold the negative impact until it is re-reported again.
Let them fall off: It is important to note that unpaid collections also reduce your score but the effect is not as severe after some time. They can take from 5 to 7 years to be erased from your credit report, completely.
Collection Management; A Pen / Pencil and Paper Solution: Is it Pointless to Pay Collections?
To sum it up it is rarely perfectly useless to pay off the collection accounts. These sitting unpaid are detrimental to your credit status as a borrower. Paying them not only adds to your score but can be rewarding in that it provides a more stress-free existence.
However, the policy stated that there is no need to get something in exchange for paying collectors; it makes them too powerful. Exercise your rights under consumer protection laws to make payment arrangements before deletion. Accept, then pay, then delete. Here is how to capture the most of the credit lines without throwing away your hard-earned cash down the drain.
When it comes to collecting debt, there are some important steps that one has to follow, and proper planning can bring much-needed financial correction for past blunders. Creditworthiness will also increase over time and this will give you many opportunities in life and a lot of options.
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