What Happens If You Don't Pay a Collection

Can You Just Ignore Those Collection Notices?

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Default on your credit card, loan, or even your monthly internet or utility payments and your account will likely be sent to a collection agency. These third-party companies are hired by companies you have accounts with to pursue unpaid debts. You’re still liable for your bill even after it's sent to a collection agency.

Many people just don’t want to pay collection agencies, perhaps because, other than ending debt collection calls, there’s no immediate benefit for paying off the debt.

Before you decide not to pay off a collection, make sure you know the consequences of ditching the outstanding balance.

Your credit will be impacted.

Debt collectors report accounts to the credit bureaus - a move that will also impact your credit score for several months, possibly even years. Your credit score will drop and may have already dropped if the collection is on a credit card or loan. The late payments and subsequent charge-off that typically precede a collection account will have damaged your credit score by the time the collection happens.

Collectors will keep calling you.

A debt collector’s job is to get you to pay for the debt. Often, collectors don’t make a profit unless they collect the full amount of the debt from you. You can expect constant phone calls and letters from debt collectors until you pay up.

Fortunately, you can stop debt collector calls by writing and asking them to stop calling.

Beware, some debt collectors ignore the law and continue calling anyway. Also, if a new collector buys or is assigned the debt, your old cease and desist letter won’t apply.

Your applications may be denied.

Debt collections are a serious delinquency and signal to other creditors and lenders that you haven’t always kept your payment promises.

You’re deemed a riskier borrower and because of that, some of your applications for new credit may be turned down. You're especially likely to be turned down for a mortgage if you have unpaid debt collections on your credit report.

You may pay higher interest rates if you are approved.

Not all applications are denied because of a collection on your credit report. If you’re approved, you might be required to pay a higher interest rate to compensate for the increased risk of nonpayment. Other services, like cell phone or cable services, may require you to pay an upfront security deposit. On a positive note, deposits are returned or credited to your account as long as you pay on time each month.

You could have a hard time getting a job.

It seems reasonable that creditors and lenders would penalize you for a having a collection account. Unfortunately, some employers also check credit reports on prospective employees. Having a collection on your credit report can keep you from getting hired, especially with financial jobs or upper management-level jobs.

The debt gets passed around from one collector to another.

Collection agencies typically are assigned a debt for a few months. If you haven’t paid in that time, a new collection agency may take over the debt.

The process repeats several times through the years until you finally pay up. The debt will never just go away. That means you may have to send a new cease and desist letter to stop the calls or a new debt validation letter to force the collector to prove you owe the debt.

You could be sued.

Many people think collectors won’t sue for debts over a certain amount, but truthfully, collectors can sue you for a debt of any amount. If the creditors get a judgment against you, they could also ask the court to garnish your wages to enforce the judgment. Don’t ignore a lawsuit summons, even if you believe the statute of limitations has passed on your debt. If you’re sued, consult an attorney on the best way to proceed.

The debt will fall off your credit report after seven years.

Whether you pay the collection or not, it will stay on your credit report the entire credit reporting time limit.

Then, when that time period elapses, the collection will fall off your credit. You'll still owe it and the collector can still come after you, but your credit report won't show the debt.

Paying a collection isn't the most exciting thing to do with your money, but there are some benefits to paying. For one, you get the collectors off your back. And, a paid collection looks better on your credit report than an unpaid one, particularly when it comes to getting new credit. If the collection is legitimately yours, it's typically better, in the long run, to pay it and be done with it.