If your debt ends up in collections, it means that the original creditor has relinquished the account to collectors so it can recoup its loss. While a collector can be downright annoying, it is in your best interest to not ignore their letters or calls. Here is why:
- Debts Stay on Your Credit Report for 7 Years
When a debt falls into collection, it will affect your credit score for 7 years. After 7 years, the obligation drops off the report and the score can begin to climb. However, who can really afford being debilitated this way for so long?
- It is Difficult to Apply for New Credit
Ignoring unpaid debts also makes it difficult for you to apply for new credit. After all, would you extend credit to someone who still has some lingering obligations? You need to put yourself in the creditor’s shoes if you want to learn how to get out of debt. If you are able to secure credit while in debt, you will have to pay a higher rate of interest. This is because your debt represents an added risk.
- Mortgage Loan Financing Is Hard to Obtain
Ignoring old obligations that are in collections also makes it difficult for you to apply for a mortgage loan. Again, you have to look at the situation from the mortgagee’s point of view. Would you, if you were in the same position, be motivated to grant a loan to someone who has pending obligations?
To get back on track financially, you need to learn to control your spending. After you are able to control your spending, you also need to place a priority on paying debts. Otherwise, your credit rating will suffer and so will your ability to obtain positive financing, such as a mortgage.
- Jobs Are More Difficult to Obtain
By throwing away bills from collectors, you can also affect your job-seeking ability. The link between getting a job and unpaid debt is called trust. Potential job seekers can hurt their credibility if they show they cannot act responsibly and pay their bills on time.
To convince an employer that you are learning to get out of your debts, you need to show that you have a good reason why you incurred such debts and that you wish to pay off the obligation as soon as possible. While paying off a debt does not remove it from your credit report, it makes it simpler to explain your financial situation to a potential employer.
- You Could Get Sued
You also need to consider the possibility that you could get sued. Even if your debt is small, it does not mean it will not happen. If the statute of limitations for the debt is in effect, a creditor can still legally sue you. If you lose the lawsuit, your wages will usually be garnished. Even if you win the case, you will still lose, given the legal expenses you will assume.
If you still have unpaid debts, take note of the points we’ve discussed above. Consult a professional if you still need further help.