Is waiting for your collection debt to disappear the right move?

Collection debt is common. Very, very, common. How common? According to a recent study over a third of Americans with any sort of credit history have debt in collections right this very minute. More accurately it’s 35.1 percent.

That’s very similar to the 36.5 percent of Americans with collection debt in 2004. So that hasn’t really changed much. Credit card debt relative to income, however, has dropped significantly over that same time period. It’s currently the lowest it’s been in 10 years.

Consumers are successfully reducing their personal debt loads and making on-time payments regularly – currently only 2.44 percent of all American card accounts are overdue by 30 days or more, which is down quite a bit from the 15-year average of 3.82 percent.

So what’s going on? If on the whole, American consumers are doing better and taking better care of their finances, why are so many still dealing with collection debt?

The answer might be that they aren’t dealing with it at all.

Seven years is a long time

It wasn’t that long ago that the bottom fell out of the national economy and a lot of responsible, hardworking people found themselves with money problems they never anticipated. Late payments became missed payments became overdue accounts became charged off accounts became endless phone calls from debt collectors.

Once you’ve got an account in collections you’ve got a decision to make: do I pay this off or do I wait it out?

If you successfully ignore your collection debt for seven years it eventually falls off your credit report, so there’s an obvious appeal to just waiting it out. But seven years is a long time. A lot of important stuff tends to come up over such long periods. Is it really in your best interest to wait that long with damaged credit?

What’s my best option?

Not sure which route to take? Take the following steps to help put your situation in perspective:

  • Review your credit report. First off, you should really assess the damage to your credit to understand how you’ve been impacted by the charged off debt. You can obtain a free copy of your credit report at AnnualCreditReport.com or you can speak to one of our trained counselors here at MMI (which is also free and includes your current credit score).
  • Consider your future plans. Credit impacts more than just your ability to get a loan. Consider all of your big plans for the coming years. Buying a house? Moving to a new apartment? Applying to a new job? Buying a new car? Poor credit can put a damper on a lot of major plans.
  • Weigh your priorities. You might still be able to get what you want without paying off your collection debt. Maybe you won’t. There are no guarantees one way or the other. But you should still consider your priorities. If getting a great interest rate on your mortgage and having a (relatively) low stress experience doing so are important to you, you’re probably better off clearing your collection debt ASAP. If your priority is holding on to whatever money you might spend on your collection debt and your credit isn’t a concern, then waiting it out might be the right path.

Still not sure?

If you’ve got goals, but you’re still not sure if paying off your collection debt is in your best interests (or even affordable for you), take the time to speak with a debt and budget counselor. Counseling is free and should help you figure out the best path to reach your specific goals.

If you’re carrying collection debt, you’re very much not alone. There’s no shame in having defaulted on your debts. The question now is What are you going to do about it?

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.