What’s the Timeline on Debt Collection?
Falling behind on debt payments — like credit cards and medical bills — can be a very stressful experience. The good news is borrowers generally have some time to get things back on track before the consequences become very serious. In other words, instead of writing it off as “too late” to make a payment, there’s often a way to salvage the situation by taking action.
Knowing the debt collection timeline can help you decide what to do if you find yourself in this situation.
Step 1: One Month Past Due
The earliest lenders can report late payments to credit bureaus is 30 days. So, if you miss a bill but are still within the 30-day window, you’ll likely only face a small late fee and possibly an APR hike from your creditor — but your credit score will remain unchanged.
Step 2: Two Months Past Due
Missing another month can tack on more late fees, as well as lower your credit rating. You’ll likely get more communications from your creditors warning you about the negative consequences of continued nonpayment.
Although it may not seem like there’s much difference between 30 and 60 days late, it’s in your best interest to figure out a way to address the problem in a timely manner — particularly for the sake of your credit history.
Identify the reason your bills have slipped into delinquency. Is there a larger underlying problem like a financial hardship? Explore your options, from credit counseling to debt relief. These Freedom Debt Relief reviews will help you get an idea of what to expect from a debt settlement program. Another option may be calling your creditor and working out a forbearance agreement under which you can skip payments for a limited amount of time due to a specific hardship, like losing your job.
Step 3: Three Months Past Due
The impact of a three-month-or-later missed payment is more serious on your credit score. At this point, your original creditor may sell the debt to a third-party collection agency in what’s known as a charge-off. However, you may still have a bit more time to work something out with your original creditor before they pass off the debt.
Step 4: Four to Six Months Past Due
After four to six months of nonpayment, your creditor will almost certainly charge off your debt because it’s unlikely you’re going to pay it. The original lender would rather get something than nothing, so they try to minimize their losses by handing off the debt to a collection agency.
As Investopedia points out, however, facing a charge-off does not mean you can write off the debt as over and done with. You still owe it, and will likely see more assertive tactics from the collection agency as they try to get you to pay. Furthermore, charge-offs remain on credit reports for seven years — although paying the debt will change the status to “charge-off paid/settled.”
Third-party debt collectors may sell off the debt again to another agency, which is why it’s very important to verify any claims collectors make without claiming the debt as your own or making any payments when contacted, until the debt is proven to be yours and still within the statute of limitations. Knowing your rights under the Fair Debt Collection Practices Act can help you maintain boundaries with collectors and communicate productively.
Step 5: Legal Action
Creditors and collectors can take you to court. If the judgment goes against you, your wages may be garnished, or your assets liquidated to pay back the debt. Be sure to take the threat of legal action seriously; missing your court date will count as a win for the creditor.
The takeaway here? The earlier you can get a handle on unpaid debt, the less detrimental it will be to your credit history and your wallet.
