Can you just ignore those collection notices?
We don’t think so.
Here’s a situation: you were going to pay off a debt, but money was tight and you decided that paying off your mortgage was more important, and the debt was never paid.
If you’re wondering the consequences you might face, there are plenty of unpleasant scenarios that could play out. The financial fallout could include a plunging credit score, higher interest rates on future loans and lots of fees. That’s why it’s key to understand potential repercussions before you’re tempted to ditch paying off an unpaid debt or ignore notices from the collection agency.
Here’s a primer on what will happen if you have an outstanding payment, and why you should make paying off your debt a top goal to become financially secure.
WHEN WILL YOUR DEBT GO TO COLLECTION
If you ignore the creditor’s letters and phone calls, and you’re unable to work out an agreement to repay or settle the debt, or you set up a repayment schedule but fail to make the payments, your bill will most likely be turned over to a collection agency.
Once the debt is reported to a collection agency, the negligence will show up in your credit report. This will probably take place within three to six months after you default.
WHAT TO EXPECT WHEN YOUR DEBT GOES TO COLLECTION
A debt collector’s job is to get you to pay your debt. Often, collectors don’t make a profit unless they collect the full amount of the debt from you. You can expect constant phone calls and letters from debt collectors until you pay up.
Your credit score declines
As you can imagine, ignoring paying off a debt can cause significant financial damage even if you never actually pay it off.
Whether you pay the collection or not, it stays on your credit report for the entire credit reporting time limit. Then, when that time period elapses, the collection will fall off your credit. You’ll still owe the debt and the collector can still come after you, but your credit report won’t show the debt any longer.
You could face a lawsuit
Your lender could decide that it’s worthwhile to hire an attorney and sue you. Of course, you can avoid these repercussions by working out a reasonable payment plan with the lender. By doing so, odds are you’ll pay only the principle and no longer be hammered with interest rates and fees. And you’ll probably find that once you start working with a debt collector, it’s a lot less stressful than avoiding paying off your debts and fearing negative consequences.
WHAT ARE THE NEXT STEPS FOR YOU
Unpaid collections accounts may eventually land you in court – or at least with a court summons.
Contact a lawyer
Sometimes a creditor isn’t willing to withdraw the lawsuit, or you may believe you aren’t responsible for the debt. While you don’t have to get professional legal representation, a lawyer can help you construct a defense and guide you through the court proceedings.
While any legal action taken against you is a serious matter, there are steps you can take after receiving a summons to appear in court that could lessen the blow.