By Financial distress can cause someone to get behind on their bills. Being late by a month or two can result in late fees and other penalties. But when a debt has gone between 90 and 180 days past delinquency, the creditor may decide to take more drastic measures, such as “charge off” the bad debt and pass it on to a collection agency. Here’s what happens once collections take over.
When debt goes to collections
There are several negative consequences to having debt end up in the hands of a collection agency.
A decrease in credit score
The debtor may see an impact on their credit score. Collection agencies report to each of the three major credit bureaus. Since FICO (the company that calculates credit scores) considers payment history to be 35% of their score, late payments typically affect cause the debtor’s credit score a lot. The amount will vary depending on the individual’s credit history. What’s worse is that the negative item will remain on their credit report for up to seven years.
Aggressive pursuit
Just because the original vendor charged off the debt does not mean it will disappear. Once debt is in the hands of a collection agency, some people may be pursued more than before.
Although it’s illegal, some people may have experienced being harassed or acts of intimidation by debt collectors. Anyone dealing with this should know that debtors have rights under the Fair Debt Collection Practices Act. For example, debt collectors cannot contact debtors at work or outside standard daytime hours (before 8 a.m. and after 9 p.m.). Debtors can also ask debt collectors to stop contacting them altogether or only reach them via specific methods.
Legal trouble
People who fail to enter into an arrangement with a collection agency may eventually be sued. Collections may file lawsuits in an attempt to get a court order to garnish the debtor’s wages or have a lien placed against their property. In some situations, the courts may provide a judgment that allows collections to freeze the debtor’s bank accounts.
What to do if an account goes to collections
When unpaid debt enters into collections, the debtor should do the following.
Dispute inconsistencies
When someone is initially notified that their debt was sent to collections, the debtor has a right to see any supporting documentation. Debtors should take this opportunity to review the paperwork and look for any errors or inconsistencies. For example, the debt may be the wrong amount or entirely a mistake.
The debtor should notify the agency in writing if an error is found. For false claims, a dispute should be filed with the credit bureaus to have it removed.
Initiate a payment plan
Assuming what’s owed is legitimate, the debtor should work out an arrangement with the collection agency. The company may be willing to work out a repayment plan that benefits the debtor and allows the company to collect something rather than nothing – even if it’s as small as just $50 per month.
Avoid other debt going to collections
When someone has debt that goes to collections, it may be a sign of more considerable financial trouble and other debts may soon be delinquent. Before this happens, those in need may want to consider the help of a debt consolidation loan. This may help them get enough money to pay off their existing debts. Essentially, it allows the debtor to trade their unfavorable loans for one with better terms.
The bottom line
When an unpaid debt goes to collections, it can have several negative consequences. The debtor’s credit score can drop, they’ll be pursued by the collection agency, and they may even face legal dilemmas. Debtors should act by validating the collector’s claim to make sure it’s legitimate, arrange a repayment schedule with the collector, and avoid letting other debts go unpaid by considering a debt consolidation loan.
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About OneMain Financial
OneMain Financial is the leader in offering nonprime customers responsible access to credit and is dedicated to improving the financial well-being of hardworking Americans.
Contact Information:
Name: Sonakshi Murze
Email: [email protected]
Job Title: Manager
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