Collection agencies specialize in collecting debts that consumers leave unpaid. Creditors must pay collection agencies a percentage of whatever the company collects or sell accounts to the company for far less than the debt is actually worth. Thus, collection activity is reserved for severely delinquent accounts. In certain situations, however, making payments on time does not protect you from having your accounts transferred to collection agencies.
Clerical Errors
All companies, no matter how well-organized, are subject to the occasional clerical error. Should this occur, your on-time account could be relegated to a collection agency. If you receive communication from a collection agency regarding an account you know you paid on time, contact your creditor immediately and address the problem. All creditors' policies differ, but you may need to provide your creditor with evidence of your timely payments, such as canceled checks, in order to have your account pulled out of collections.
Less Than Minimum Payments
Just because you send in timely payments does not mean that your creditor has to accept them. Creditors typically have a minimum monthly payment that they demand from you. Sending in less than the minimum payment leaves a delinquent balance remaining on your account. Because your account is officially "delinquent" your creditor can send it to a collection agency -- even though you are making payments toward the total balance.
Medical Debt
Your insurance company is responsible for paying off your medical debt in a timely manner. Even if you pay your insurance premiums regularly, that is no guarantee that your insurance company will remit payment to your health care provider within the required time frame. According to the Neighborhood Economic Development Advocacy Project, health care providers often send debts to collection agencies much more quickly than other creditors.
Keep in touch with your health care provider regarding payments made on your account. If your insurance company is late submitting a payment, contact the insurance company and inquire about why it has yet to pay off your debt. It's up to you to keep your medical debts out of collections.
Settlement Balances
When you negotiate a settlement with a creditor, that creditor allows you to pay less that the total balance you owe to "settle" the account. Unfortunately, the remaining balance doesn't always disappear. Unless your creditor provides you with a written statement agreeing to forgive your remaining debt after you pay off the settlement, it still owns the debt and, if it chooses, can sell the debt to a collection agency. Thus, making timely payments on a settlement agreement doesn't always prevent the account from ending up with a collection agency in the future.
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