When it comes to settling your debt, there are plenty of misconceptions out there about how the process affects your credit. Obviously, when it comes to debt, your best option is simply paying it on time. When you don’t pay your debt on time, you run the risk of having your account sent to collections and having the event reported to the credit bureaus, which will lower your credit score.
While in some cases, it is advisable to pay an account that has gone into collections, in other cases it is not. While this might sound counterintuitive, sometimes paying on debt that is in collections actually won’t increase your score. While making these payments won’t hurt your score, why make them at all if the damage is already done? However, in some cases, your creditor might be able to take you to court and get a judgement against you.
If you have a legal judgement against you, then it becomes much easier for your creditors to collect your debts. They have extended options, including wage garnishment and access to your bank accounts in some cases. In cases where you have a judgement against you, it is advisable to make payments.
Whenever you do pay your debts, make sure that you have an agreement in writing. With an agreement in writing, you can make sure that you have legal protection. Without an agreement, a creditor could theoretically take your money and then still claim that you owe them payment.
Most collection agencies use collection agency merchant accounts from credit card processors such as EMB. Collections agencies have become less aggressive and more flexible over the years due to new laws and protections for consumers.
Collection agencies are more likely to work with you on a plan for you to pay back your debt. In most cases, if you owe less than $500 or so, a collection account won’t ruin your credit. But if your creditor decides to sue you, then it might be time for you to start making payments to avoid the legal headache.