.

SmartMoney Blogs

Encore
A blog about living in and planning for retirement

3 Myths About Debt Collection

iStockPhoto

There was a time older Americans could rely on cushy pensions in retirement (which helped them remain debt free), but these days, most don’t have a pension — and debt levels are high.

Roughly half (48%) of boomers expect to have to have a mortgage in retirement, according to a May 2011 study by Bankers Life and Casualty Company.  Roughly one in three workers over 55 say they have more credit card debt than retirement savings, and 41% had just as much credit card debt as retirement savings. And while most boomers will be able to pay down their debt without getting into credit trouble, that’s not always the case: Americans 45 and older are the fastest growing group filing for bankruptcy, according to a report by the Wall Street Journal.

So it’s important for the millions of boomers facing a load of debt — and some annoying calls from debt collectors — to know their rights. To that end, Encore talked to Steve Fredrickson, CEO of Portfolio Recovery Associates, a debt collection firm, about some myths regarding debt collection.  Here are some of the most common myths, and the truth behind them.

  • MYTH #1: Once a consumer pays a bill that is in collections, it will come off his or her credit report. FACT: It can take up to seven years for some items to “fall off” an individuals’ credit report, so this late payment still impacts your credit score even after the item has been paid in full.
  • MYTH #2: Debt settlement firms, which charge a fee to address consumers’ debt issues, offer consumers a unique savings opportunity in relation to their original debt. FACT: You can call a debt collector on your own to negotiate a payment plan, without paying any fees to a debt settlement firm.
  • MYTH #3: If a debt has been “charged off,” by the original creditor, you don’t have to pay it. FACT: “Charged off” is just a financial accounting term referring to when an account goes into a certain stage of delinquency (usually 180 days past due).  When this happens the original creditor writes it off as a loss on their accounting statements (that’s what “charge off” means) and then often hands it over to a debt collector, which it hopes will collect at least part of the money.  But just because the company has “charged it off” doesn’t mean you don’t have to pay the money — this non-payment is still on your credit report, and thus impacts your credit score.

Comments

We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comments (5 of 6)

View all Comments »
    • The boomer demographic and stats this article is focused on is certainly interesting.

      The 3 facts are true enough. The article could be better balanced with helpful tips for the general public about dealing with debt collectors and collection accounts.

      Settlements for less than the balance owed with assignees of your creditors, or debt buyers who purchase your charged off accounts are common. Settlements directly with your lender just prior to account charge off are also available – sometimes for a better savings than can be gained from the collector.

      You do not need to hire a settlement company to get deals for you. It is good to prepare yourself with knowledge about timing your efforts and what percentage of the balance to target as an offer/counter offer, especially if you are juggling multiple accounts.

      This article and site contains some helpful tips:
      http://consumerrecoverynetwork.com/question/settling-charged-off-credit-card-debts-with-collection-company/

    • The author interviews a debt collector- to inform consumers of their rights? When do we get the Newt Gingrich interview on family values?

    • Hello, everybody, the good shoping place, the new season approaching, click in.
      Welcome to

      http://ai。vc/wc

    • Fact: You don’t need any of those companies to settle debts. Do it yourself.

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.

.