A Guide to What Happens When You Have Debt in Collections
If you got a notification saying that you have debt in collections now, then it is not too unlikely that your first response was: “What happens when you have debt in collections?” No worries, this sort of thing luckily does not happen all that often to people, so the fact that you are not entirely sure what it is about is not a big deal at all. Just make sure that you are taking it seriously, and there should be no reason for concern.
Looking up what exactly debt collection is about was a good start already, so good job on that. The next step now is to take some time to read this article, so that you really know what is going on with your debt, and what exactly it means that it is in collections now. Even more importantly, though, you are going to learn about what to do next, now that your debt is in collection. Ready? Okay, here goes.
1. Dept in collections – what does it mean? Most of the time, debt gets sent straight to collection when you stop making your payments on it on time. This is true for pretty much any type of debt out there. Whether your type of debt comes from student loans, your credit card, a mortgage or medical costs really does not matter so much. What matters is that you have debt, you did not pay on time, and now it is being sent to collections because of it. The direct effects of having your debt in collections are that, essentially, the person or institution that you owe money to is now more serious about getting their money back from you.
Now, since that did not happen, your contact information has been passed on to a professional debt collection agency. The only thing they do is to collect debt. This is what it means that your debt is in collections now.
2. What can you expect now? Once your debt has hit collections, the first thing that is going to happen is that your original lender will probably no longer contact you in person. Instead, expect the collection agency to start contacting you in numerous ways. This can range from phone calls and letters, up to personal visits as well. Since the debt collection agencies have a financial interest to get you to pay your debt (it is their livelihood after all), they are not going to stop pestering you. The best thing you can do now is to try and either repay your debt, or try and work out something with your lender so that they will go easier on you again.
Another consequence of having your debt in collection is that this fact will now be listed in your credit report. As a result, getting any further credit approved is going to be difficult, because any potential lender will immediately know that you already have some debt in collections. For them, this is a red flag because it tells them that you are probably not very likely to repay any money that they give you.
The next step is that they will force you into a courtroom, and probably more than once. But in a way, the fact that your debt collector will not quickly give up on you is a good thing. Because if even the debt collection agency gives up, then your debt will be listed as “charged-off”. If this happens, you are no longer going to have to pay it, but it will permanently drag your credit report down to oblivion. After having charged-off credit on your report, you are going to have an extremely hard time getting any credit ever again.
There you go, now you know what happens when you have debt in collections. Of course, the best thing to do is to avoid hitting collections in the first place. But after it happens, it is not the end of the world. Try to work together with your lender and the debt collection agency, to get out of this mess ASAP.