When debt is sold to a collection agency, it’s incredibly common to get upset and/or worried. Odds are, you’ll start getting calls, emails, and text messages about you paying what’s owed.
In today’s post, we’ll discuss what leads to debt going to collections, what to do, what the collections agency can do, and what happens to your credit.
Why does debt go to collections?
Debt goes into collections when you’re behind a certain period of time (usually 30+ days) on your payment.
The lender will either use their own debt collectors or hire a third party to collect. What might also happen is your debt is sold to a collection agency, where they buy the debt from the lender (at a reduced amount than what you actually owe) and then attempt to collect on that amount.
Mortgages
With regard to mortgages, there are certain time periods to keep in mind:
- 1 – 15 days – Typical grace period. Your payment must be paid in this period.
- 16 30 days – You’ll start getting reminders, and you’ll likely pay a small late fee. No damage to your credit.
- 31 – 59 days – Reminder calls and letters will increase. Your credit will reflect your current late status and your credit score will fall.
- 60 – 90 days – The reminder calls and letters will stop. Someone from your lender will come to your house.
Read more on this subject, here.
What to do when your debt is sold to a collection agency
Don’t ignore it. The best thing you can do is get ahead of it. Gather information about the debt in question. Have them send it to you in writing.
Contact the creditor. Dispute it if you believe there are inaccuracies, or if it’s just not your debt. If it is your debt and everything is accurate, try to negotiate with the lender – they prefer to receive some of what you owe!
If the collection agency is harassing you, submit a request in writing for them to stop.
What if you’re at your wit’s end and don’t know what to do? Hire an attorney. All correspondence, going forward, has to go through them. If anything, get a consultation from an attorney (which is often offered for free) and see what they recommend.
What can they do?
When it comes to collections and the law, there are a few things they can do and several things they can’t do. If you want to know more about that, click here.
Your credit
There are two important things to know when it comes to collections and your credit report.
- A collection (or a charge off) hurts your credit score. Not only that, but your payment history (number one factor when calculating your score) will no longer be 100%, and that’s damaging as well.
- A collection will stay on your credit report for 7 years. You can implement strategies to improve your score, but you’ll only be able to do so much while that collection is on there.
Having a debt sold to a collection agency isn’t the end of the world. There are several things you can do to rectify it, dispute, or recover from it.
Related reading:
What You Need To Know About Bankruptcy
What Affects Your Credit Score
Jacob Sensible is a financial advisor with decades of experience in the financial planning industry. His journey into finance began out of necessity, stepping up to support his grandfather during a health crisis. This period not only grounded him in the essentials of stock analysis, investment strategies, and the critical roles of insurance and trusts in asset preservation but also instilled a comprehensive understanding of financial markets and wealth management. Jacob can be reached at: jake.sensiba@mygfpartner.com.
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