Five Reasons to Pay Your Debt Collections
Giving money to a collections agency can feel like handing your lunch money to a schoolyard bully. But it’s different when you legitimately owe what the collection agency is asking you to pay.
Paying a collection agency often is painful because the product or service associated with the debt has long since been consumed. If you’re debating if you should pay a debt you owe, here are five benefits of getting the collections agency off your back for good.
1. Stop collection calls for good
As long as you have outstanding debt, you’ll probably continue getting calls from collections agencies. A cease and desist letter may end calls from one particular debt collector, but collections accounts often are switched between agencies, so you’ll keep being contacted about the debt until it’s taken care of.
2. Get approved for credit cards and loans
Many banks won’t approve a credit card or loan application as long as you have outstanding collections accounts on your credit report. This means no mortgage, no car loan, and no credit card. Additionally, some employers won’t hire you for certain jobs if you have unpaid debts on your credit report, and many landlords will reject your application for a lease.
Paying the collection won’t remove it from your credit report, but the money it costs to bring the balance to $0 might be well worth it if it that debt is what was standing between you and the need for a home or a car.
3. Improve your credit score
As collections get older, they affect your credit score less. Collection accounts will disappear from your credit report after seven years, even if you never pay them. But if the accounts are less than seven years old, a paid collection is better for your credit score than an unpaid one.
Keep in mind that settling an account by negotiating a lower payoff is not the same as paying the full, original debt. Lenders still may view a lower negotiated payoff as an example of a potential borrower who didn’t fully settle a debt—even if your balance shows $0 owed.
4. Eliminate the risk of being sued
People sometimes assume debt collectors won’t waste their time or money suing over a small collection, but that’s not always true. As long as you have an outstanding collection that’s still within the statute of limitations, there’s a risk of being sued for what you owe.
A lawsuit could lead to a court judgment, a public record that will tarnish your credit report for seven years. And if you still don’t pay up, the collector may get court permission to garnish your wages.
5. You’re closer to being debt-free
Paying off a debt held by a collection agency means you’ll owe money to one less company. You may feel like you’ve lost the battle if you pay a debt after resisting for months or years, but in the long run, it is better for your credit and your finances. Taking care of debt collections is a good thing when you can afford to do it.