Why Pay off Collection Accounts on Your Credit Report?

If you get behind on your payments, some of your accounts may be turned over to a collections agency. At that point, you may be unsure of whether you should pay off this debt or leave it alone. While you could potentially avoid paying it, it would most likely be to your advantage to pay it off so that you can avoid future problems.

Avoid Lawsuit

If you refuse to pay off your credit accounts once they are turned over to a collections agency, you might find yourself on the wrong end of a lawsuit. If the amount is very small, the collections agency may not worry about filing a lawsuit. If you are dealing with a large amount of money, they might file a lawsuit against you. If they receive a judgment against you, you could have your wages garnished or your bank accounts frozen. It is much easier to set up a payment plan or some other arrangement to take care of the debt.

Time Frame

When you default on debt such as a credit card account, it stays on your credit report for an extended period of time. You will find that a default stays on your credit report for at least seven years. This means that it will be difficult to obtain additional financing as long as this note is on your report. You may be able to work with your collections agency to get the negative information removed from your credit report if you are willing to pay.

Credit Impact

Paying off your old collection accounts can help you rebuild your credit. To determine which debts are the most important, you can look at your credit report. If the debt still shows up on the original account, it would be to your advantage to pay it off. If the debt shows up with a collections agency and not with the original creditor, it would not help your credit score to pay it off.

Debt Settlement

You may also be able to agree to a debt settlement with your collections agency. This is a process that involves giving the collections agency a lump sum of money in return for closing out the account. The sum will be less than the full amount of what you owe. Since the collections agency paid less than the total amount to purchase the account, they may be willing to negotiate.