If possible, it is best to avoid the headache and stress of having a bill go into collections. Not only is it typically a negative experience, but it also really hurts one's credit score.
A debt collection is an account that has been sent to a third-party debt collector. Each creditor has different rules for sending bills to collections. Because of the Fair Debt Collection Practices Act, there are strict rights and regulations on the topic.
When debt is unsecured and does not require collateral, creditors cannot do too much, so collections takes over. Collection agencies know that eventually, one will need to use their credit to get a loan, and they can't without paying off that account.
When one doesn't have enough money to pay a bill and it goes unpaid, or if one never received the bill and never sent the payment, that bill could go into collections. Additionally, one's credit bureaus will be notified of the lack of payment.
A lot of times bills get sent to collections after one is experiencing struggle, maybe because of some kind of financial or medical emergency. Typically, people have notice before bills are sent to a collections agency. Creditors will usually call, send letters, and try to work out an agreement on how one can pay back the debt. It is advised people talk to collection agencies in writing, so everything is on record.
Usually the creditor hands over the debt to collections around 60 days after an unpaid bill. When it comes to the medical world, around 30 million Americans have medical bills in collections.
The most common kinds of debt sent to collections include: medical bills, credit card bills, cell phone bills, utility bills, etc.
When debt goes into collections, it could be sold or assigned to a debt agency. In this case, the creditor may still own the debt, but it is just assigned to another agency as opposed to the creditor. However, it is also possible for the creditor to sell the debt to a collection agency.
When one receives a notice from collections, it is best they try and fully understand it. One should look at how long the debt has been in collections and what it is for. Since creditors must prove one owes the money, it is best for people to make sure it is accurate. If it is correct, paying off a debt right away in one lump sum can avoid or lessen credit damage. Credit bureaus report debt typically in around 30 days. People who don't pay could be taken to court.
If payment is not a big possibility, one could try to negotiate and settle with the collection agency.