Are you struggling to manage an account that is past due or in collections? You’re not alone. In fact, an estimated 68 million people have one or more accounts in collections or charged-off status. Moving on and getting your finances in order after a life event such as a job loss, death of a family member, or medical issues can be overwhelming, especially when it comes to dealing with accounts that have fallen into collection status. But don’t worry, this article is here to help.
In this article, we’ll dive into the difference between collection accounts being paid in full and settled for less. We’ll also provide recommendations from someone who has been in your shoes on what to do if you plan on making a large financial purchase in the near future. Don’t let the stress of collections overwhelm you – read on for tips and guidance.
Understanding the Difference Between Paid in Full and Settled for Less
When it comes to managing your debt, it’s important to understand the difference between paying in full and settling for less. Paying in full means that you pay the entire amount you owe, while settling for less means that you pay a lower amount than what you originally owed. Typically, settling for less is only possible once your account has been sold to a debt buyer or a collection agency.
To Pay in Full or to Settle?
Deciding whether to pay your full balance or try to settle it for less depends on your financial situation and long-term financial goals. If you’re planning to make a major purchase, such as a car or a home, in the next few years, you may want to consider paying the balance in full if it won’t create a financial hardship or drain your emergency savings.
However, if you decide to settle for less than what you originally owed, there are a few things to keep in mind. Firstly, forgiven or canceled debt may be considered income by the IRS, which means you may have to pay income taxes on the amount forgiven. Additionally, make sure to get a written agreement from the creditor or collection agency before providing any payment. This will protect you in case they try to sue you.
Considerations for Settling Your Account
While settling for less may seem like a good option, it’s worth noting that having a settled account on your credit report may not look as favorable to lenders as a paid in full status. It’s important to keep this in mind if you plan on applying for credit in the future.
If you’re unsure about what to do, it’s always a good idea to seek advice from a loan officer or mortgage company, especially if you’re planning on making a major purchase in the near future. Remember, not all lenders have the same guidelines when it comes to qualification criteria and negative items on your credit report, so it’s best to get advice from a professional.
To Pay or Not to Pay: A Guide for Dealing with Old Collection Accounts on Your Credit Report
If you have an old collection account on your credit report, you may be wondering whether you should pay it off or let it fall off your report. A general rule of thumb is to pay attention to the age of the account. Negative items such as collections fall off your report 7 years from the date of the first missed payment. Paying off older collection accounts may actually cause your credit score to drop.
However, it’s worth noting that any communication with a debt collector could result in the statute of limitations being re-activated. If you’re unsure about what the statute of limitations is for debt in your state, you can reach out to your State’s Attorney General’s Office for information.
What to do if You Spot Errors on Your Credit Report
If you spot errors on your credit report, such as an incorrect date for a missed payment, you have the right to dispute it under the Fair Debt Collection Practices Act (FDCPA). Make sure to provide proof of your dispute. If you suspect that the original creditor or collection agency may be altering the dates to keep the account on your credit report, you can report them to your State’s Attorney General’s Office or file a complaint with the Federal Trade Commission. Account re-aging is a serious offense and a violation of the FDCPA.
Keeping an accurate record of your accounts and regularly monitoring your credit report can help prevent errors and keep your credit score in good standing. If you’re trying to make a large purchase in the near future and have a collection account that is close to aging off your credit report, it may be in your best interest to wait until it falls off before moving forward with your purchase.
In Summary
Dealing with debt collectors can be stressful and overwhelming, but it’s important to know that you have rights and protections. If you’re trying to repair your credit and move on from a life event, asking the right questions and documenting everything is crucial for protecting yourself and setting yourself up for financial success in the future.
It’s also important to remember that having accounts in collections is not uncommon. Approximately 68 million people have one or more accounts in a collection or charge-off status. If you’re feeling overwhelmed and like you’re running out of options, don’t hesitate to reach out for help.