Nobody would contend that going into collections is a good thing, but you are generally able to negotiate a smaller lump sum payment once it happens. That’s about where the positives end. John Ulzheimer has this to say about the downsides to debt collection in Tuesday’s Web Extra:
1. Paid collections still remain on your credit files! It’s a myth that once you pay debt in collections that it comes off your credit. In fact, it takes seven years from when the debt went into collections originally for it to expire from your credit report.
2. Don’t expect your scores to increasse even if you pay what is in collections. The incident is why your score is damaged, not so much the balance. Credit scores exist to predict the likelihood you will default on a loan. Fortunately, if the original sum of the debt in collection is under $100 it will be ignored on your scores.
3. The higher the balance, the more likely you will get sued if you ignore the collector. Make arrangements to settle the collection (the ONLY time Ulzheimer suggests debt settlement) or set up a payment plan, which can be tough because collectors aren’t always keen on the idea.