Debts in Collection imageMany people get behind in their finances from time to time, as sometimes the job can go sour or the economy can take a hit. Even if you have a good budget, you may encounter unforeseen issues like getting laid off, divorcing, or encountering surprise expenses. When you get behind, what commonly occurs is that you may miss paying your bills on time. You simply might not have the money to cover the bills. When this occurs too many times, the account is closed and your debt is sold to a third-party debt collector. It is understood that no one wants to be hit with debt-collectors, but it has been known to happen to many people. Not only will you now receive annoying debt collector calls, but your credit is going to take a big hit as well.

How Your Credit Is Affected

The effect this will have on your credit is related to two factors: your current credit score and the size of the debt. The higher your credit score is, the more severe the consequence will be. If you already have a low credit score, there will still be a drop, but it can only drop it by so much. It is a percentage of what your score is, so pay extra special attention to your bills if you have a high credit score.

Small debts may not have any effect on your credit at all. Anything under $100 may not even show up on your credit report. The main determining factor on this one will be how the credit was attained and whether the debt used to be higher. If the amount came down to under $100, it may not affect you. If the total debt grew to the amount, there’s a possibility it can have an adverse effect on your credit.

You might think that having your debt sent to a third-party debt collector is the end of your finances, but that is not true. There are many people and couples that have hit hard times and then dug themselves out little by little. The key is to educate yourself on the topic of personal finances and to discipline yourself when it comes to spending. You might even want to hire a personal finance professional to sit down with you and help you get your finances in order.

Correcting the Issue

The best way to correct the effect the debt is having on your credit score is to pay it off and have the “collection” status removed from your credit report. Many debt collectors will offer to do this for you as long as you pay off the debt. They will accept payment plans and even a discounted amount if you pay it all at once. Of course, if the debt was reported erroneously, or you’ve already paid it, you can file a dispute to have it removed from your credit. For help with disputing a error, sign up for our free consultation

Debt collections is a serious matter, so do all you can to avoid having your debt put into collections. Perhaps you can borrow some money from a family member or a friend. Or maybe you can get a second job for a while until you get your debt paid off. The important thing is to address the situation at hand and take measures to resolve the situation. Getting involved with debt collectors is not the end of the world, so cut yourself some slack, but do the necessary work in order to make amends when it comes to your personal finances. You’ll be glad you did in the long run.