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If you don’t pay your credit card bill, you could face more severe consequences than you might think. Though it will depend on your credit card issuer, you can generally expect to be charged a late fee as well as a penalty interest rate which is higher than the regular purchase APR.

Life happens, and, from time to time, payments are missed, especially if you’re dealing with emergencies such as losing a job or a family crisis. In the event you have skipped a credit card payment, it’s crucial you understand what can happen. That way, you can take steps to reduce the odds of it having a major impact on your financial health.

Here, you’ll learn more about this topic, including:

•   What happens if you don’t pay your credit card bills?

•   What if you miss one credit card payment?

•   What happens if you only can make minimum payments?

•   How can you pay off credit cards?

What Happens If You Don’t Pay Your Credit Card?

Consequences for missed credit card payments could include being changed late fees and possibly losing your grace period. It may also negatively affect your credit score since issuers report your payment activity to the credit bureaus — in most cases after 30 days.

There may be other consequences depending on how late your payment is and whether it’s your first time missing a payment.

Accruing Interest

When you don’t pay your credit card, interest will accrue and will continue to do so as long as you have a balance on your card. In essence, you are paying more for your initial purchase thanks to that interest.

The longer you go without paying your credit card, the more you risk your rate going up. Your credit card issuer may start imposing a penalty annual percentage rate (APR), which tends to be higher than your regular purchase APR. If this happens, you’ll end up paying more in interest charges. The penalty APR may apply to all subsequent transactions until a certain period of time, such as for six billing cycles.

Collections

Depending on your credit card issuer, your missed payments may go into collections if it goes unpaid for a period of time. You’ll still continue to receive notices about missed payments until this point.

More specifically, if you don’t pay your credit card after 120 to 180 days, the issuer may charge off your account. This means that your credit card issuer wrote off your account as a loss, and the debt is transferred over to a collection agency or a debt buyer who will try to collect the debt.

Once this happens, you now owe the third-party debt buyer or collections agency. Your credit card issuer will also report your account status to the major credit bureaus — Experian, TransUnion, and Equifax. This negative information could stay on your credit report for up to seven years.

It’s hard to tell what third-party debt collectors will do to try and collect your debt. Yes, they may send letters, call, and otherwise attempt to obtain the money due.

Some collections agencies may even try to file a lawsuit after the statute of limitations expires. In rare cases, a court may award a judgment against you. This means the collections agency may have the right to garnish your wages or even place a lien against your house.

If your credit card bill ends up going to collections, take the time to understand what your rights are and seek help resolving the situation. Low- or no-cost debt counseling is available through organizations like the National Foundation for Credit Counseling (NFCC).

Bankruptcy

You may find that you have to declare bankruptcy if you still aren’t able to pay your high credit card debt and other financial obligations. This kind of major decision shouldn’t be taken lightly. You will most likely need to see legal counsel to determine whether you’re eligible.

If you do file bankruptcy, an automatic stay can come into effect, which protects you from collection agencies trying to get what you owe them. If successfully declare bankruptcy, then your credit card debt will most likely be discharged, though there may be exceptions. Seek legal counsel to see what your rights and financial obligations are once you’ve filed for bankruptcy.

Making Minimum Payments

A minimum payment is typically found in your credit card statement and outlines the smallest payment you need to make by the due date. Making the minimum payment ensures you are making on-time payments even if you don’t pay off your credit card balance. Any balance you do carry over to the next billing cycle will be charged interest. You can also avoid late fees and any other related charges by making a minimum payment vs. not paying at all.

What Happens if You Miss a Payment

If you can’t pay your credit card for whatever reason, it’s best to contact your issuer right away to minimize the impact. Let them know why you can’t make your payment, such as if you experienced a job loss or simply forgot. For the latter, pay at least the minimum amount owed as soon as you can (ideally before the penalty or higher APR kicks in).

If this is your first time missing a payment but otherwise paid on time, you can try talking to the credit card company to see if they can waive the late fee.

Some credit card issuers may offer financial hardship programs to those who qualify, such as waiving interest rates, extending the due date, or putting a pause on payments (though interest may still accrue) until you’re back on your feet.

15/3 Rule for Paying Off Credit Cards

The 15/3 payment method can help you keep on top of payments and lower your credit utilization — the percentage of the credit limit you’re using on revolving credit accounts — which can impact your score.

Instead of making one payment when you receive our monthly statement, you pay twice — one 15 days before the payment due date, and the other three days beforehand. This plan is useful if you want to help build your credit history and pay on time.

The Takeaway

Missing your credit card payment may not be a massive deal if it just happens once or twice, but it can turn into one if you continue to ignore your bill. While it’s not exactly fun to have to pay a late fee, you may be able to negotiate with the credit card issuer to waive it if you are otherwise a responsible user. Even if not, it’s better than being bumped up to the penalty APR or, worse still, having your account go to collections.

Are you looking for your first or a new credit card? Consider the SoFi Credit Card. With perks like cash back rewards on all purchases, no foreign transaction fees, and Mastercard ID Theft Protection, it may be just the right choice for your personal and financial goals.

The SoFi Credit Card: The smarter way to spend.

FAQ

How long can a credit card go unpaid?

The statute of limitations, or how long a creditor can try to collect the debt owed, varies from state to state, which can be decades or more.

What happens if you never pay your credit card bill?

If you never pay your credit card bill, the unpaid portion will eventually go into collections. You could also be sued for the debt. If the judge sides with the creditor, they can collect the debt by garnishing your wages or putting a lien on your property.

Is it true that after 7 years your credit is clear?

After seven years, most negative remarks on your credit report, such as accounts going to collections, are generally removed.

Photo credit: iStock/MStudioImages
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
1See Rewards Details at SoFi.com/card/rewards.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
This article is not intended to be legal advice. Please consult an attorney for advice.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
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Source: sofi.com

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How Do Payday Loans Work? – SmartAsset

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Many Americans have income that fluctuates from week to week. When incomes are unsteady, any unexpected expense can leave you coming up short. If you don’t have a fully funded emergency fund, you may find yourself looking around for loans to bridge the gap and get you to your next paycheck. Payday loans are out there, but at a high cost to borrowers. Before taking out a payday loan you may want to first make a budget. You can work with a financial advisor who can help you make a long-term financial plan that you can budget your finances to meet. 

Payday Loans: Short-Term Loans with a High Price

What are payday loans? Say you’re still 12 days away from your next paycheck but you need $400 for emergency car repairs. Without the $400 your car won’t run, you won’t make it to work, you’ll lose your job and possibly lose your housing too. High stakes.

If you go to a payday lender, they’ll ask you to write a future-dated check for an amount equal to $400 plus a financing fee. In exchange, you’ll get $400. You’ll generally have two weeks or until your next paycheck to pay that money back. Say the financing fee is $40. You’ve paid $40 to borrow $400 for two weeks.

If you pay back the money within the loan term, you’re out $40 but you’re not responsible for paying interest. But the thing is, many people can’t pay back their loans. When that happens, the money they borrowed is subject to double-digit, triple-digit or even quadruple-digit interest rates. It’s easy to see how a payday loan can lead to a debt spiral. That’s why payday loans are illegal in some places and their interest rates are regulated in others.

When your loan term ends, you can ask your payday loan lender to cash the check you wrote when you agreed to the loan. Or, you can roll that debt into a new debt, paying a new set of financing fees in the process. Rolling over debt is what leads to a debt spiral, but it’s often people’s only choice if they don’t have enough money in their account to cover the check they wrote.

Are Payday Loans a Good Idea?

Not all debt is created equal. An affordable mortgage on a home that’s rising in value is different from a private student loan with a high-interest rate that you’re struggling to pay off. With payday loans, you pay a lot of money for the privilege of taking out a small short-term loan. Payday loans can easily get out of control, leading borrowers deeper and deeper into debt.

And with their high-interest rates, payday loans put borrowers in the position of making interest-only payments, never able to chip away at the principal they borrowed or get out of debt for good.

Payday Loans and Your Credit

Payday loans don’t require a credit check. If you pay back your payday loan on time, that loan generally won’t show up on your credit reports with any of the three credit reporting agencies (Experian, TransUnion and Equifax). Paying back a payday loan within your loan term won’t boost your credit score or help you build credit.

But what about if you’re unable to repay your payday loan? Will that payday loan hurt your credit? It could. If your payday lender sells your debt to a collection agency, that debt collector could report your unpaid loan to the credit reporting agencies. It would then appear as a negative entry on your credit report and lower your credit score. Remember that it takes seven years for negative entries to cycle off your credit report.

Having a debt that goes to collections is not just a blow to your credit score. It can put you on the radar of some unsavory characters. In some cases, debt collectors may threaten to press charges. Because borrowers write a check when they take out a payday loan, debt collectors may try to press charges using laws designed to punish those who commit fraud by writing checks for accounts with non-sufficient funds (these are known as NSF checks).

However, future-dated checks written to payday lenders are generally exempt from these laws. Debt collectors may threaten to bring charges as a way to get people to pay up, even though judges generally would dismiss any such charges.

Alternatives to Payday Loans

If you’re having a liquidity crisis but you want to avoid payday lenders, there are alternatives to consider. You could borrow from friends or family. You could seek a small personal loan from a bank, credit union or online peer-to-peer lending site.

Many sites now offer instant or same-day loans that rival the speed of payday lenders, but with lower fees and lower interest rates. You could also ask for an extension from your creditors, or for an advance from your employers.

Even forms of lending we don’t generally love, like credit card cash advances, tend to have lower interest rates than payday loans do. In short, it’s usually a good idea to avoid payday loans if you can. Instead, consider working on a budget that can help you get to your next paycheck with some breathing room, and make sure you have a rainy day fund.

The Bottom Line

When considering a short-term loan, it’s important to not just look for low-interest rates. Between fees and insurance policies, lenders sometimes find ways to bump effective interest rates to triple-digit levels even if they cap their APRs. The risks of taking a payday loan bring home the importance of working hard to build up an emergency fund that you can draw on.

Tips for Retirement Planning

  • If you’re not already preparing for retirement then it’s a good idea to create a retirement plan and make sure you’re contributing to it regularly. If you’re overwhelmed or don’t know where to begin, a financial advisor can help you map it all out. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Not sure how much you need to save for retirement? Consider using our free retirement calculator to get the number you need so that you can start making the right progress.

Photo credit: ©iStock.com/PeskyMonkey, ©iStock.com/Kirby Hamilton, ©iStock.com/Joe_Potato

Amelia Josephson
Amelia Josephson is a writer passionate about covering financial literacy topics. Her areas of expertise include retirement and home buying. Amelia’s work has appeared across the web, including on AOL, CBS News and The Simple Dollar. She holds degrees from Columbia and Oxford. Originally from Alaska, Amelia now calls Brooklyn home.

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If your identity is stolen, you may have trouble obtaining credit or getting a good interest rate, and creditors may pursue you for debts you haven’t incurred. You may even encounter problems when applying for a job because of fraudulent, negative information that appears on a background check. For all of these reasons, and more, if you become a victim of identity theft, you need to begin working to clear your name immediately. Here are the basic steps to take.

File an Identity Theft Report

Get a physical copy of the report, as you’ll need it for later steps in the identity recovery process. Also, get the name of the officer who took the report, the report number and a phone number for follow-up inquiries.

Call Equifax, Experian and TransUnion

These are the three credit bureaus that will use their dedicated fraud reporting phone numbers and automated systems to place a fraud alert on your credit file. A fraud alert notifies the credit agencies that your identity has been compromised. An initial fraud alert lasts for 90 days, and an extended fraud alert lasts for seven years.

The initial alert is more appropriate when you aren’t yet certain that you’re a victim. For example, you would file an initial alert if your wallet was stolen but fraudulent activity hadn’t cropped up yet. The extended alert is more appropriate if you know you’ve been a victim, because it requires creditors to take extra steps to verify your identity before issuing new credit in your name.

If you want to take an additional step to protect your identity, place credit freezes on each of your credit reports. A credit freeze prevents new creditors from accessing your credit reports, which should prevent them from issuing new credit. Identity thieves will be locked out, but so will you. You’ll have to unfreeze your credit any time you want to apply for new credit. Placing and thawing a credit freeze normally costs money, but in some states this service is free to identity theft victims.

Close Affected Accounts

If you’ve had any sensitive information stolen, close all accounts associated with that information. For example, if your wallet is stolen, immediately close the accounts associated with all the credit cards in your wallet. If information about your checking account was in your wallet, close your checking account, too. If your driver’s license was stolen, contact your state’s department of motor vehicles to notify them of the theft, and request a new card. If your health insurance card is stolen, notify your insurance provider and request a new policy number to stave off medical ID theft.

Examine Your Credit Reports Carefully

Identity theft victims are entitled to a free copy of each of their credit reports. Request yours when you place the fraud alert. If you find any fraudulent activity, contact the creditors associated with that activity, and ask them to send your application and transaction records, which is your right under section 609e of the Fair Credit Reporting Act.

Creditors may require a copy of your police report before turning over this information, and you may have to wait several weeks to receive it, as the credit agencies have up to 20 days to send it to you. Once you receive the paperwork, provide the evidence of the fraudulent transactions to the police department that took your initial report to help build your case. Also, report the fraudulent accounts to the credit agencies using a correction of errors form. The Fair Credit Reporting Act requires credit bureaus to remove inaccurate, or fraudulent, information from your account.

Finally, send letters to the creditors, associated with the fraudulent activity, notifying them that the accounts are fraudulent, and that you want them blocked from your file. Use form letters ITRC 100-1 and 100-3, available for free, online, from the Identity Theft Recovery Center.

Obtain Letters of Clearance From Each of the Credit Reporting Bureaus

In these letters, the credit bureau acknowledges that an investigation proved that your case was identity theft. These letters will help you if fraudulent accounts resurface on your reports in the future. They will also help you if a collection agency contacts you to pay a debt an identity thief incurred using your information.

Keep a Close Watch on Your Bills and Mail

If your identity is stolen, more than one ill-intentioned person may end up with your data, because thieves sometimes sell stolen information. Even after you clear up the initial problem, a new problem may appear later on.

The Bottom Line

Keep records of all contacts with law enforcement, creditors, credit bureaus and debt collectors. Also, keep copies of all correspondence. Send any mailed correspondence by a traceable method that allows you to confirm and prove delivery. Get detailed, written confirmation of any steps third parties take on your behalf (such as closing fraudulent accounts). Keep receipts for any expenses you incur in the process of clearing your name.

“What To Do If Your Identity Is Stolen” was provided by Investopedia.com.

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Alternatives to a debt consolidation loan

Home equity

One popular way people pay off debt is to use the equity in their homes. Home equity loans and home equity lines of credit (HELOCs) let borrowers use their homes as collateral in exchange for financing. Just be sure to factor in the risks if you’re considering this option. The lender can seize your home if you can’t make the payments.

Who this is best for: Borrowers who have built up equity in their homes.

Who this is not good for: Those unsure of their ability to maintain the monthly payments. 

Home equity loan versus debt consolidation loan: Home equity loans and HELOCs may offer lower rates than debt consolidation loans, though they come with more risks, since your home is used as collateral.

Debt relief services

Debt relief services, including debt settlement companies, offer another way to deal with your debt if you can’t qualify for a consolidation loan. These companies reach out to creditors and debt collectors on your behalf and try to settle the debt for a lesser amount.

If you decide to pursue debt relief services (perhaps as an alternative to bankruptcy), be aware that the fees these companies charge can be steep. Take your time to fully research fees, reviews and other details before applying. It’s also wise to compare multiple debt relief companies before you commit.

Who this is best for: Borrowers who are experiencing financial hardship and cannot pay their debt.

Who this is not good for: Those with a thin credit history or less-than-stellar credit score.

Debt relief services versus debt consolidation loan: Unlike debt consolidation loans, debt relief services aim to eliminate some of your debt without you having to pay it. With that said, pursuing debt relief is a risky move, and it can damage your credit score.

Credit counseling

Another option that can help you get debt under control is credit counseling. Credit counseling companies are often (though not always) nonprofit organizations. In addition to debt counseling, these companies may offer a service known as a debt management plan, or DMP.

With a DMP, you make a single payment to a credit counseling company, which then divides that payment among your creditors. The company negotiates lower interest rates and fees on your behalf to lower your monthly debt obligation and help you pay the debts off faster.

DMPs are rarely free, though, even if they’re done by a nonprofit credit counseling service. You may have to pay a setup fee of $30 to $50, plus a monthly fee (often $20 to $75) to the credit counseling company for managing your DMP over a three- to five-year term.

Who this is best for: Borrowers who need help structuring their debt payments.

Who this is not good for: Those with little wiggle room in the budget. 

Credit counseling versus debt consolidation loan: With a debt consolidation loan, you’re in control of your payoff plan, and you can often apply with few fees. With credit counseling, a third party manages your payments while charging setup fees.

Balance transfer credit card

With a balance transfer card, you shift your credit card debt to a new credit card with a 0 percent introductory rate. The goal with a balance transfer card is to pay off the balance before the introductory rate expires so that you save money on interest. When you calculate potential savings, make sure you factor in balance transfer fees.

Keep in mind that paying off existing credit card debt with a balance transfer to another credit card isn’t likely to lower your credit utilization ratio like a debt consolidation loan would.

A debt consolidation loan is also going to offer higher borrowing limits, enabling you to pay off more debt, as well as fixed monthly payments, which make it easier to budget and stay disciplined with paying off debt.

Who this is best for: Borrowers who can pay off existing debt quickly.

Who this is not good for: People with a young credit history or a less-than-average score. 

Balance transfer credit card versus debt consolidation loan: Balance transfer cards are often the best choice for borrowers who have the means to pay off their debt within 18 months, which is a standard 0 percent APR period. If you need longer to pay off your debt, or if you have a lot of debt, a debt consolidation loan is a better choice.

Source: thesimpledollar.com

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Alternatives to a debt consolidation loan

Home equity

One popular way people pay off debt is to use the equity in their homes. Home equity loans and home equity lines of credit (HELOCs) let borrowers use their homes as collateral in exchange for financing. Just be sure to factor in the risks if you’re considering this option. The lender can seize your home if you can’t make the payments.

Who this is best for: Borrowers who have built up equity in their homes.

Who this is not good for: Those unsure of their ability to maintain the monthly payments. 

Home equity loan versus debt consolidation loan: Home equity loans and HELOCs may offer lower rates than debt consolidation loans, though they come with more risks, since your home is used as collateral.

Debt relief services

Debt relief services, including debt settlement companies, offer another way to deal with your debt if you can’t qualify for a consolidation loan. These companies reach out to creditors and debt collectors on your behalf and try to settle the debt for a lesser amount.

If you decide to pursue debt relief services (perhaps as an alternative to bankruptcy), be aware that the fees these companies charge can be steep. Take your time to fully research fees, reviews and other details before applying. It’s also wise to compare multiple debt relief companies before you commit.

Who this is best for: Borrowers who are experiencing financial hardship and cannot pay their debt.

Who this is not good for: Those with a thin credit history or less-than-stellar credit score.

Debt relief services versus debt consolidation loan: Unlike debt consolidation loans, debt relief services aim to eliminate some of your debt without you having to pay it. With that said, pursuing debt relief is a risky move, and it can damage your credit score.

Credit counseling

Another option that can help you get debt under control is credit counseling. Credit counseling companies are often (though not always) nonprofit organizations. In addition to debt counseling, these companies may offer a service known as a debt management plan, or DMP.

With a DMP, you make a single payment to a credit counseling company, which then divides that payment among your creditors. The company negotiates lower interest rates and fees on your behalf to lower your monthly debt obligation and help you pay the debts off faster.

DMPs are rarely free, though, even if they’re done by a nonprofit credit counseling service. You may have to pay a setup fee of $30 to $50, plus a monthly fee (often $20 to $75) to the credit counseling company for managing your DMP over a three- to five-year term.

Who this is best for: Borrowers who need help structuring their debt payments.

Who this is not good for: Those with little wiggle room in the budget. 

Credit counseling versus debt consolidation loan: With a debt consolidation loan, you’re in control of your payoff plan, and you can often apply with few fees. With credit counseling, a third party manages your payments while charging setup fees.

Balance transfer credit card

With a balance transfer card, you shift your credit card debt to a new credit card with a 0 percent introductory rate. The goal with a balance transfer card is to pay off the balance before the introductory rate expires so that you save money on interest. When you calculate potential savings, make sure you factor in balance transfer fees.

Keep in mind that paying off existing credit card debt with a balance transfer to another credit card isn’t likely to lower your credit utilization ratio like a debt consolidation loan would.

A debt consolidation loan is also going to offer higher borrowing limits, enabling you to pay off more debt, as well as fixed monthly payments, which make it easier to budget and stay disciplined with paying off debt.

Who this is best for: Borrowers who can pay off existing debt quickly.

Who this is not good for: People with a young credit history or a less-than-average score. 

Balance transfer credit card versus debt consolidation loan: Balance transfer cards are often the best choice for borrowers who have the means to pay off their debt within 18 months, which is a standard 0 percent APR period. If you need longer to pay off your debt, or if you have a lot of debt, a debt consolidation loan is a better choice.

Source: thesimpledollar.com

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What Happens When a Bill Goes to Collections? – MintLife Blog

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credit score. You will then be contacted by phone and in writing regarding the details of the charge-off.

In this guide, we’ll explore what happens when a bill goes to collections as well as what to expect during the payoff process. You can still redeem your credit score by paying down your debt as quickly as possible and staying diligent with your other accounts.

What Is a Collection? 

The original lenders—such as the credit card company, mortgage lender, or doctor’s office—turn to collection agencies when they no longer expect to receive your payment. Collection agencies either act as a middleman to retrieve the debt or purchase the debt from the lender for a fraction of the original amount. The lender then writes the amount off as a loss to their business and passes responsibility off to the agency. 

Collection agencies purchase your debt for a smaller percentage of the original amount since they take on the risk that the money will not be repaid. This percentage varies based on a series of details, including the age and type of debt. Often, the higher the risk the debt will not be repaid, the less the agency pays.

When does a bill go to collections? A lender will typically sell the debt between 30 and60 days of delinquency, though they may not tell you that this occurred until after the transfer. Medical bills will not be transferred until they reach 180 days of delinquency due to the National Consumer Assistance Plan.

Once a lender sells the debt to a collections agency, you will receive a phone call alerting you of the change. Within five days of the initial notice, you will receive a physical letter that outlines the amount owed and how to pay or dispute the bill. Agencies do not have the right to collect fees or interest on the amount, nor are they allowed to threaten or intimidate you to pay the bill. The debt collectors can continue to pursue the amount depending on your state’s statute of limitations. The length varies between three to ten years depending on the laws of your state.

How Can a Bill in Collections Affect My Credit?

Payment history is one of the top contributing factors to your credit report, accounting for over a third of your credit score. Lenders want to be able to see that you’ve managed your finances in the past. Missed and lapsed payments that have gone to collections could be seen as a sign of financial instability. The effect on your credit score comes down to how late the payment is, the amount due and the type of debt.

When unpaid bills are sold to collection agencies, the negative mark can stay on your credit score for up to seven years. The starting date is determined by the last time the bill was brought current. For example, notes on defaulted bills can remain on your credit for seven years after the last time you made a payment on the loan in question. 

It is important to look at your credit report on occasion to ensure these negative marks do not appear by accident. If the collections agency or lender made a mistake in reporting the information, you can dispute the debt to have your report updated or the note removed.

As we mentioned earlier, the National Consumer Assistance Plan keeps medical debt from appearing on your credit report before 180 days of delinquency. This allows patients to negotiate with their doctors and insurance companies, many of which will offer payment plans when the bill is too high to pay in full.

How to Handle Accounts in Collections

Understanding what happens when your debt goes to collections can be daunting. Remember that you must receive all the details in writing within five days of first receiving notice. Once this arrives, verify the details with your own payment history and accounts. Review the Fair Debt Collections Practice Act if you’re concerned your collection agency is overstepping their bounds. Collectors are not, for example, allowed to intimidate you or call at unreasonable hours.

If all information is confirmed, you can approach the payoff in several ways. Set up a payment plan with your collection agency by determining a practical timeline with your own finances. If you can afford $50 a month for the next year, speak to your agency about this option and request any agreement in writing before proceeding. Avoid giving your bank account number or setting up automatic debits with the collection agency and clearly state how you plan to pay off the amount.

Dispute any inconsistencies within 30 days of collections notification. Collections does not have the right to list the debt on your credit report during the investigation. The Consumer Financial Protection Bureau has prepared sample letters for disputing or requesting clarification from a collection agency.

Once you’ve done your due diligence of requesting a payment plan and paying down the debt to your ability, the statute of limitations laid out by your state determines how long a collection agency can pursue you. A collection agency can sue you for unpaid debt, but you may have a case to have the lawsuit dismissed with legal assistance if the debt is outside the statute of limitations.

If a bill goes to collections, you do have options. Keep yourself informed about your rights as you work with collections agencies and be sure to request all agreements in writing. You can also track your credit as you make a plan for paying down your debt. This allows you to regain control after a temporary moment of financial instability.

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    Apache is functioning normally

    Rose Prophete bought her home in Canarsie, Brooklyn, N.Y. in May 2005. She thought she had paid off her loans until recently, when a company approached her about a debt she thought she had settled a long time ago.

    The company expected Prophete to pay up over $130,000, or face foreclosure.

    When refinancing her mortgage on the home, Prophete…

    Source: marketwatch.com

    Apache is functioning normally

    If you were contacted by a debt collector for a mortgage that you haven’t heard about in years, then you might have a “zombie mortgage.”

    The Consumer Financial Protection Bureau has received a concerning number of consumer complaints and has heard from advocates about what are sometimes referred to as zombie second mortgages. Homeowners may think that a mortgage debt was forgiven or was satisfied long ago by loan modifications or bankruptcy proceedings. Then years later, debt collectors reach out threatening foreclosure and demanding the homeowner pay the outstanding balance of the mortgage, along with years of interest and fees.

    Here is one consumer’s story:

    “We obtained a second mortgage with [company] when we purchased our home in 2005. Two years later in 2007 property values started to decline and mortgage companies started to go out of business which led to losing my job of 10 years. They were extremely difficult times for my family financially and emotionally. We started to fall behind with our bills and our mortgages. I was able to modify my first mortgage lender. I continued to fall deeply behind with our second mortgage with [company]. We tried to modify the second mortgage several times after we fell behind but [company] would not work with us and gave us the run around. Through the years I tried again to modify not knowing who can assist us. We did not receive phone calls from [company] for a few years. Not until a year ago or so when property values started to increase, we have aggressively been receiving letters requesting large amounts of money to bring the loan current, money that we do not have.”

    Zombie second mortgages tend to particularly affect older borrowers, lower-income borrowers, and borrowers in communities of color.

    The CFPB is taking action

    Today, the CFPB is taking steps to protect consumers from illegal activity related to zombie debt and zombie mortgage foreclosure.

    • At 1:00 p.m. ET, the CFPB will be hosting a field hearing in Brooklyn, New York to hear from advocates, experts, and members of the public about the impact of zombie second mortgages. Follow along with the conversation at #CFPBLive. Watch the field hearing
    • The CFPB has issued guidance making it clear that it may be illegal for debt collectors subject to the Fair Debt Collection Practices Act to use or threaten to use judicial processes, such as foreclosure, to collect a debt after a state’s statute of limitations expires. Read more about today’s guidance.

    Want to know more?

    The CFPB has resources to help you learn more about zombie second mortgages, understand your rights when dealing with debt collectors, and take action to protect your home.

    Source: consumerfinance.gov