“Where’s my money? Where’s my money? Where’s my money?” asks (demands?) my eight-year-old nephew of his beleaguered father when the week is through, and chores are done (or not done as the case may be). As with many of us, getting an allowance from our parents was our first introduction to the fantastical world of finance.
Sometimes we got the money, other times we got a spending limit for a toy at the store. The idea was the same, to teach us at a young age some sort of fiscal responsibility. Being part of the electronic age, it seems paper money is going by the wayside, being replaced more and more by plastic, crypto, and now apps on smartphones.
As technology continues to expand and children are having it thrust upon them, the question that now begs to be asked, is allowing children access to financial instruments (credit/debit cards or financial apps) a good idea? Let’s see.
WHY SHOULD CHILDREN HAVE CREDIT CARDS?
An immediately disclaimer must be made abundantly clear at this point. Under no circumstance is this author or article implying or stating outright that children should be given access to unlimited funds on a credit or debit card or in a smartphone app.
This process should be a learning opportunity in money and responsibility. It must come with a set of ground rules that must be followed by both parent and child. With that being said, why should children have a credit card?
Builds Credit
The primary reason most people agree upon as to why get a child a credit card is that it helps build the child’s credit score. And as most of us know, credit scores (approximately 15%) are partly based on the length of time a person has been using credit. The earlier the start, the longer the credit history, the better the score – in theory.
Learn to Use Credit
Another top-notch reason for providing children with access to credit cards is that it instills in them the how(s), why(s), and when(s) to use credit. It provides them a roadmap of sorts with time being spent in places such as Proper-Borrowing-Habits-ville, Budgeting town, Learn-Interest-Rates-burg, and the little hamlet of Paying-It-Back.
ADDITIONAL BENEFITS
Instilling Healthy Financial Habits
As well as learning how to use a credit card, as described above, this process can be a great jumping off point to instill in your child(ren) healthy financial habits that go beyond responsible spending. This is a great opportunity to introduce the young credit card holder to saving and investing. All things that help prepare as the child eventually transitions from minor to an adult that needs to provide for a family and fund a retirement.
A Soft Safety Net
Another positive benefit for starting your child off with a credit/debit card while under your care is to provide a nice soft financial safety net for them. That is, since you are able to monitor their spending habits you may have the opportunity to intervene before a major financial blunder occurs. And if such a blunder does occur, again you are there to help them navigate through those turbulent financial waters and make it safely to a calm harbor.
WHAT ISSUES CAN ARISE
Reckless Spending
While the goal is to teach and instill health financial habits in your children, some minors may still be unable to avoid the historical pitfall of credit cards – reckless or overspending. This is a very easy trap to fall into for adults let alone children. Parents must be vigilant not only at the end of the month when the bill arrives but also during the month via monitoring the child’s spending habits.
Lost or Stolen Cards
It has happened to the best of us and most certainly will happen to the child with a credit/debit card. Said card will get lost! Before that happens putting a plan in place as what to do if and when a card comes up missing is a must. That plan should contain a folder of some sort that contains all appropriate contact numbers for the credit card companies. It is always best to be over prepared for a lost or stolen card scenario.
HOW TO MAKE IT WORK
Outline Rules
To make this enterprise, like any other endeavor, work there must be some basic groundwork rules put in place. A key part of having all parties agree to and work within said rules, is to be sure all parties have a say in what the rules shall be. Writing down these rules in easy to understand, concise language is a huge must.
Outline the rules for spending, what is and is not allowed to be purchased, repayment options, online usage, and weekly spending amounts are just some examples.
Spending Limits
As stated above, spending limits should be a vital part of the rules. You should decide on the total amount of spending allowed for the month should be as well as breaking that amount down into weekly and daily spending. This would go a long way to teaching the children about spending habits, delayed gratification, and money management.
Paying the Bill
Probably the most important lesson in this process is who and how the bill at the end of the month is to be paid. Will the child be responsible for the entire amount? Will it be taken out of an allowance? Will they be able to do additional chores to earn additional income? Will the parents pay a percentage of the bill, matching the children’s contribution? Again, this is a critical learning stage for the child and can be a great opportunity to lay solid financial foundations for the future.
HOW TO GET CREDIT CARDS FOR CHILDREN
So now you have reached the point where you decide is getting my child(ren) a credit card a viable option. The first step in deciding to move forward is deciding if your child(ren) is mature enough to handle the responsibility. Let’s say yes. Now what?
Add to Adult’s Account
Some credit cards can be open in the child’s name only assuming they meet the requirements (ie. minimum age) of the issuing company. Another option is to add them to the adult’s account in which they would be issued a separate card. Keep in mind that it is important to make sure both parties understand the policies and what is expected of them with regards to the ownership of the credit card.
Research Child Specific Cards
In today’s technological online focus, many companies have seen an untapped market (ie. children) and have develop a slew of credit/debit card options designed specifically for the younger crowd. Be sure to spend some time sifting through the various options and find one that matches what you want to accomplish with regards to your child’s financial education.
IN CONCLUSION
So, should your child or children in general have access to credit/debit cards? That is a serious conversation for each family to handle in their own homes. There are many pros and cons and they should be discussed with all seriousness and decorum. It is a big undertaking and an even bigger responsibility. A responsibility that both parent and child alike must be up to the task.
The bottom line is that allowing your child access to credit is a wonderful opportunity for them to learn responsible financial management, but it can also be a powerful temptation to go down the reckless spending path. A decision like this should not be made lightly as it can impact the future of both parent and child.
Each month millions of people across the country never really take heed of that little packet, sometimes multiple packets, stashed within their pile of mail – with the other junk, letters, and bills. Many of us have been receiving these gems since the age of eighteen and dutifully opening them, writing a check, and mailing a payment back without ever giving the process a second thought or glance.
But what do you know about that little packet – that credit card statement? If you ever wondered what all the different parts to the credit card statement meant – or what they are – then keep reading. We will break down and explain the credit card statement – that little monthly packet of joy. Let’s get started.
WHAT IS A CREDIT CARD STATEMENT?
Simply stated, a credit card statement is a monthly overview of all the activity – charges, interest, other activities – associated with that specific credit card for the prior month, also known as the billing cycle. Let us now take a deeper look at the dreaded credit card statement.
What are the important components of the credit card statement?
Your credit card statement is composed of several parts, providing you with some important information. Those parts include but are not limited to:
An account summary
A statement balance
The grace period deadline
The available credit
A list of the most recent transactions
The minimum payment amount due
A minimum payment warning
And total reward points earned (if a part of your credit card benefits)
These parts and others will be explained in greater depth in the next section. But first a quick explanation as to why you receive a credit card statement.
Why do you get a credit card statement?
The primary reason we receive this monthly document simply stated is that the credit card company wants their money. This makes a very good reminder to you that you have a financial responsibility to meet.
However, another reason is that this statement is a very useful tool to help you monitor some of your expenses, to be able to adjust your budget, and even help you monitor your credit indirectly by seeing fraudulent charges. With that being said, let us move on to a deeper look at the actual parts of the credit card statement.
PARTS OF YOUR CREDIT CARD STATEMENT
Credit card statements provide an individual with a plethora of information. And that information can be very confusing at first glance. The following sections will break down that information into more manageable chucks and hopefully clear up any confusion.
Payment Information
The Payment Information section of your credit card statement contains a lot of information including the current balance of your card, the minimum payment due, the date that the minimum payment is due, and a minimum payment warning – which details how long it will take to pay off the current balance only making the minimum payment.
Account Summary
The Account Summary section of your credit card statement explains how the credit card company calculates the current balance of the credit card. This section is not to be confused with the Account Information section which will be described next.
Account Information
The Account Information section of your credit card statement is kind of important. This section lists any legal disclosures, calculation information, and what to do if you find an error on your statement.
Rewards Summary
The Rewards Summary, if rewards are part of your credit card, of your credit card statement details the how and where any rewards you may have earned came from and on what they can be used.
Payments and Credits
The Payments and Credits section of your credit card statement lists all the payments you have previously made that have been applied to the balance of the card. It also lists any refunds credited back to your account – for example if you returned a purchased item.
New Charges
The New Charges section of your credit card statement lists all the new purchases you have made during the current billing cycle. Many times, it will also list the date of each purchase and the retailer.
Interest Charges
The Interest Charges section of your credit card statement provides you with the total fees and interest year-to-date, as well as the calculation for the interest charged during the current billing cycle. It will also list the different balance types such as purchases, cash advances, balance transfers and the like. Finally, this section lists any applicable annual percentage rates.
ADDITIONAL PARTS OF YOUR CREDIT CARD STATEMENT
To stay on top of your finances and to keep your credit is good shape, you should look for these following items which will be listed in the various sections that have been detailed above.
Previous Balance
The Previous Balance portion of your credit card statement is how much money was owed at the end of the previous billing cycle. Keep in mind that this amount gets carried over to the current month and you may have to do a little math to tease out the previous balance, current balance, and total balance from each other.
Notice of Changes
The Notice of Changes portion of your credit card statement is very important. This section details any changes, up or down, to the interest rate attached to your credit card. Usually, the credit card company will put this on the statement that is 45 days earlier than the proposed change. So, you really must read your statement and keep an eye out for any changes.
Fees
The Fees portion of your credit card statement will list all fees or charges you may have incurred during the current billing cycle. These fees can include annual fees, late fees, overlimit fees, balance transfer fees, cash advance fees, and/or foregoing transaction fees.
Credit Limit
The Credit Limit portion of your credit card statement is straightforward and simple. This details the maximum amount of credit afforded to you by the credit card company. It’s how much you can spend, not just for that month but in total. While all of these are important, next we will review some other points to be on the look at for on your monthly statement.
LOOK FOR THESE ON YOUR MONTHLY CREDIT CARD STATEMENT
Fraudulent Charges
Obviously, this is not a defined section, however, it is very good practice to get into reviewing your statement each month and verifying each purchase. This goes a long way to not only protecting your finances but your credit score as well. With identity theft being so prevalent, a few minutes spent at the end of the month reviewing your charges can have a tremendous impact on providing you serious peace of mind.
Due Dates
Identifying the exact payment due date on your credit card statement is critical. Knowing when your payment is due can help you plan and manage your money and go a long way in keeping you on track. A good trick is to write on the outside of the statement envelop in big letters the date that your payment must be mailed and/or made.
Spending Patterns
Your credit card statement will often list for you all your purchases for that billing cycle. This is great information to review and not just to be sure that there are not any fraudulent charges. It is a great way to compare your monthly spending with your monthly budget and make adjustments as needed to either.
Fee Changes
Finding the information about changes in the fees the credit card company is charging you is vital. Many times, credit card companies will issue a card with 0% interest for a limited time frame and then the interest goes up dramatically! You want to be sure you know exactly what the interest is and will be because no one enjoys surprise fee hikes. The above sections have described what is a monthly credit card statement. But what about the end of year statement? We look into those in the following sections.
UNDERSTANDING YOUR YEAR-END STATEMENT SUMMARY
The year-end statement contains similar parts to a monthly statement however in broader terms since it is a compilation of a twelve months of data.
Account Information
Well, you have had a whole year of spending and making payments and you just received your year-end statement, now what? The first thing to do is to check out the Account Information listed. It will usually list the name, address, and phone number that relates to the account, along with the last four digits of the account number. You’ll want to make sure this information is correct and is yours!
Year End Summary Statement
Now for the potentially scary section, the Year-End Summary. This section is the compiled totals of your purchases’ amounts, cash advances amounts, and balance transfer amounts. However, keep in mind, that this section may not reflect your actual current balance since you may have been carrying a balance from previous years.
Transactions Overview
The Transactions Overview section can be a real eye opener for people who rely heavily on their credit card for making purchases and paying bills and other expenses. This section lists all of your purchases of the past twelve months and can be a critical tool in helping to manage and maintain your finances. With this section you can see spending patterns and thus can compare those patterns to your budget.
FINAL COMMENT
Monthly credit card statements are not just necessary evils that we all must contend with to function in modern society. Yes, they represent certain financial obligations we must take care of, but they also can be very useful financial tools. The information they provide can be used to adjust and maintain monthly budgets, they can help protect against identity theft and fraudulent charges, and help us stay on top of our credit. When used responsibly credit cards can improve our daily lives. The also provide an opportunity for us to learn how to handle our money more responsibly. So, take a few extra minutes each month to really read and understand those monthly credit card statements.
We all have had them, used them heard about them, read about them, knew someone who knew someone that had them, so it is no big secret. The credit card or more correctly the credit / debit card. The monetary miracle panacea. But what do we really know about that little roughly three inches by two inches plastic monster living inside so many wallets worldwide? Answering this has been relegated to the confines of this article and I will be doing just that by following the tried-and-true journalistic method of the five w’s. Yes, this is the who, what, where, when, and why of the credit card.
The Credit Card ‘Who’
One of the first questions, as obvious as it may be, often to be asked is who actually issue credit cards. And the answer is pretty simple and straightforward. The main institutions that issue credit cards come out of the financial sector, banks and credit unions. An added layer of complexity comes into play sometimes when people confuse credit card companies as a bank or credit union – take for example Visa.
Visa, itself, does not issue credit cards nor does it set any of the rates associated with credit cards. What Visa does do it offer its own branded products to banks or other financial institutions who then extend credit and rates. Many times, separate credit card companies will be setup to handle all the processing and billing for a credit card – servicing the card holders’ account.
Finally, many businesses, for instance retail stores, also issue credit cards – known as store credit cards. Although the vast majority of these cards are co-branded, that is they are issued jointly by the store and a bank or other financial institution. So once again it is generally the bank that is extending the credit and not the store directly.
The Credit Card ‘What’
What exactly is a credit card?
One would think this is a pretty straightforward and simple answer – and it is. According to Investopedia, “credit card is a thin rectangular piece of plastic or metal issued by a bank or financial services company.”
What is the difference between a credit card and a charge card?
The terms (credit and charge) on the surface seem interchangeable – and in practice they are used in that manner. However, I bet you didn’t know that there is a difference, and it is kind of a big deal. According to the Wallethub, charge cards must be paid at the end of the month in full; whereas with a credit card one only needs to make a minimum payment and may carry forward a balance to the next month.
What are credit cards used for?
Also, according to the Investopedia website, credit cards allow “cardholders to borrow funds with which to pay for goods and services with merchants that accept cards for payment.”
What types of credit cards are available?
The genre of credit cards has exploded since their inception in the early 1950’s and they can be found in a variety of business sectors and uses. The folks over at Experian list and explain a multitude of versions of the credit card including but not limited to, Rewards, Premium Rewards, Big Purchases, Transferring Debt, Student, Bad Credit, Establishing Credit, Retail, Charge, Gasoline, and Business to name but a few!
The Credit Card ‘When’
When did the use of credit start?
Most of us don’t really give the concept of credit a second thought. It has always just been there. And we all learned late in high school that it was important and something we needed to establish and keep in good standing. Good credit would be our gateway to a brighter and more comfortable future. But if you stop to think about it, when did credit start?
According to Mr. Jonathan Kenoyer, a historian, credit (defined as “a valueless instrument to represent banking transactions”) existed some 5,000 years where the Mesopotamians used tablets made of clay to conduct trade with the Harappans. Using clay tablets to keep track of financial transactions was far more efficient then traveling with immense quantities of copper coins. This practiced continued through the 1800s when the clay tablets had evolved into credit coins or charge plates.
The early 1900s bore witness to a small group of department stores and oil companies dispensing their own branded or proprietary cards. Then in 1946 a banker, John Biggins, issued a Charg-It card, where all charges would be forwarded to his bank where then his bank would reimburse the merchants and obtain payments from the card holders.
However, it is the 1950s Diners Club card that stakes claim to being the first credit card to be in pervasive use. Although if we are to get technical, the Diners Club card was not a true credit card – it was a charge card. The full balance amount of the card needed to be paid at the end of each month.
The Credit Card ‘Why’
Why was credit started?
As started early, the use of credit has been around for a very long time starting back some 5000 years ago. So why was credit needed? What was its purpose? Let’s find out. Historians and researchers believe credit was extended for agricultural consumer loans. With these ‘loans’ interest and laws (the Code of Hammurabi in 1800 BC Babylon) were developed. The Romans used credit for land purchases (Cicero sold 625 acres for 11.5 million sesterces – which wa11.5 million tons of coins) among other things.
As time trudged forward, credit and the laws surrounding it changed as well as the uses for it. Thus, the birth of credit reporting came about in England circa 1803. Credit evolution has continued until present day with credit being extended for a wide variety of consumer goods and services as well as what is reported on an individual’s credit report. It is virtually impossible to get a mortgage or car loan or a job with a poor credit report.
The Credit Card ‘Where’
Where was credit first implemented?
The use of credit can be traced back to ancient times. 5000 years ago, the Mesopotamians used clay tablets as a way to track financial information while trading. The Sumer civilization in 3500 BC used credit to extend agricultural loans. In 1800 BC Babylon, laws dealing with credit were first formalized. In 50BC the Roman empire used credit as payment for land transaction among other things. Reforms and advances to credit continued through the Dark Ages and into the 1800s in England right through the late 1800s in Atlanta, USA.
Where did the first credit cards appear?
The first things that resemble the modern-day credit card were introduced in the Old West in the 1800s. These charge plates allowed ranchers and farmers to get the supplies they needed and then pay for those supplies at the end of the month (technically making them charge cards and not credit cards) when their crops or cattle sold.
The early 1900s saw the advent of store specific credit cards. John Biggins, the Brooklynn banker, developed and issued the first bank Charge-It card in 1946. In 1950, Frank McNamara issued his Diners Club card in New York City. Californians were the proud recipients of credit card offers via mail from Bank of America starting in 1958. And now virtually every zip code in America and first world counties you can find credit cards and credit card offers.
Conclusion
And there you have it. As we worked our way, in the journalistic style asking the Ws, we learned that credit and credit cards have a very long and interesting history. From humble beginnings some 5000 years ago in ancient Mesopotamian right up into modern times, credit cards have almost been and become part and parcel to human existence.
In fact, it would appear that credit cards and virtual money (ie. cryptocurrencies) seem to be the wave of the future and it may not be long before cash and checks are totally phased out and go extinct like the dinosaurs. Although that is debatable, what is not up for debate is the history and the continued use and evolution of credit for modern day consumers.
There is no denying it. There is no ignoring it. There is really no way to avoid it. It has, does, and will continue to happen to all of us. Bills! Yes, bills. Each and every month, as adults, we experience the joy of those paper reminders that we, in fact, owe money to someone else because we choose to live our lives.
And each month many of us experience a certain dread of wondering how we are going to pay for it all. The stress caused by our finances, or lack thereof, is very real and can impact our lives in a negative way. How can we amend this monthly situation? Below are seven ways that can and will help reduce the financial stress we each face when our monthly obligations come due.
1) Make More Money
For example, let’s say you bring home $2000 in monthly income; however, your monthly expenditures total $2500. What are you going to do? The first way to over come this financial gap is to earn more money! Sounds easy enough; but how does one go about earning more money.
I’m assuming you already have a job – so the easiest way is to look that job. Ask your supervisor if you can pick up extra hours or even if a raise is possible. If you ask politely, you just may be surprised by the results.
2) Spend Less Money
Now that we have explored the make more money route, let us look at the other side of that coin. Reducing your spending is another great way to reduce your monthly financial strain. So how do we do that? First thing is to make a budget of all monthly income and debt sources.
Once you see where and how much money is coming in and going out, the easier it is to see if there are areas that you can reduce your money expenditures. For example, do you really need that $5 coffee six days a week? How about the Monday through Friday drive-thru lunches?
3) Use Coupons
Moving onto a third way to reduce your monthly financial stress. Stop being proud! Coupons are a great way to not only save money but reduce your monthly debt on things like food, clothes, and even haircuts. And they are virtually everywhere!
Clip them out of the newspaper or local magazines. There are several different apps that you can download to your smartphone. Heck just about every business has their own app that will help you save money at their storefronts. You can also set up a coupon exchange network where you trade coupons with family, friends, neighbors, or whomever is in the network.
4) Get a Part Time Job(s)
So, you still need to earn more money but asking for a raise or picking up more hours (in method one) didn’t pan out. No worries! There are plenty of part time jobs out there just waiting for an industrious individual, such as yourself, to fill.
And if one part time job is still not helping to cover your monthly expense, then get a second or even a third! No one said it would be easier or that no sacrifices would have to be made. Here, I’ll say it, it won’t be easy and you may have to make some big sacrifices; but such is life.
5) Win the Lottery
Maybe hard work isn’t your thing. Have no fear there is a method for you armchair workers. Get yourself some lottery tickets – scratchers, Powerball, Mega-Millions. It really doesn’t matter.
Just keep in mind that you will have to spend some of your limited resources to get the tickets. But we all know that you have to spend money to make money. But this doesn’t mean you have to go it alone.
You can get into a lottery pool – where everyone puts in a few bucks to be able to purchase more tickets than they could get alone and split equally any winnings among the members of the group.
6) Search for Sales
While you are waiting for your lottery ship to come in, you might as well spend some time searching out local sales. There are abundant in towns and cities across America. And it is a great way to save some money.
Some business will even double the discounts by combining a sale with a coupon! Again, check your local papers or the various smartphone apps for sale alerts. Ask your family and friends if they know of any upcoming sales. Social media is another great source of sales in your community.
7) Sell Blood or Other Possessions
Probably the least desirable method on our list but it can raise the necessary revenue needed to reduce the monthly financial stress. Sell your blood or plasma. These two resources are always in great demand in virtually every community – big or small.
Not to keen about needles? No problem. You can always sell the things you already own. Have a garage sale, visit a pawnshop, list items on social media platforms. You are only limited by how much stuff you have!
8) Sell Junk
I bet you didn’t know there is money in junk and a market for it as well! Junk sells. And many times you can get it for free. Old appliances sitting out on the trash pile can be picked up and sold to a recycling center.
All those soda and beer cans littering the roadsides, can be collected and sold. Simply by placing ads on social media sites for free junk removal can get you loads of things to sell for scrap or to be recycled for money. Don’t knock it until you try it.
Conclusion
I think we can all agree that no one enjoys living in debt and certainly no one enjoys worrying each month about if the bills will be paid on time or not. Hopefully as you have gotten to this point you have realized this this article is certainly tongue in cheek – satire. However, on a serious note, living under the constant weight of debt can be very stressful.
If you are feeling that stress, then please seek help from a professional finance counselor, create a household budget, talk to family and friends. There are a variety of ways to reduce your debt. Bear in mind that you may have to make some real sacrifices and tighten the old belt. It can be done. I believe in you. So now just do it. Oh and by the way, happy April Fool’s day!!
Many of us have had the experience of opening a letter or answering a phone call only to be greeted with those most terrifying of words, “this is an attempt to collect a debt.” Almost immediately your heart begins to thump a little faster, beads of sweat starting to form on your brow, your eyes start darting from side to side, scanning for a debt collector possibly hiding in the shadows. Your mind starts racing with a thousand questions like, “what happens now? Will I be sued? Will my wages be garnished? Will I lose all my stuff? Am I going to jail?”
Admittedly these are all frightening questions; however, it is very unlikely that being in collections is the end of the world. And to calm your fears, keep reading to get a better understanding of what it means to be in collections, the collections process, and your options and rights while you are in collections.
What does it mean to be in collections?
According to Credit Karma, being in collections means that a creditor that you have conducted business with, has sent or more specifically sold your account to a third-party company or person. This third-part entity is known as a collection agency. You are now officially in collections. Now the third-party entity will try to collect on the debt usually contacting you via mail, email, in-person, and/or phone calls. Phone calls are the collection agency’s preferred method of contacting a debtor.
All manner of debts can be sold to third-party collection agencies; however, the most common types include credit card debts, medical bills, utility bills, loans (both business and personal), student loans, or cell phone bills to name but a few. There is no limit to how many accounts associated with you can be placed in collections. Basically, if you are delinquent in payments or if you have simply stopped making payments, the creditor holding that debt can legally sell it to a third-party collection agency. The more accounts you fall behind on; the more accounts can be placed in collections.
How does having an account that goes into collection affect my credit score?
So now you have an account or two that has been placed with a collection agency. The big question here is how does having an account that is sent to collections affect a person’s credit score. The plain, simple, straightforward answer is that an account that has gone into collections will negatively impact your credit score, every time! The more accounts that get sent to collections, the more negatively your credit score is impacted. The silver lining here is that not all collection accounts on your credit history are created equal.
According to Credit Sesame, collection accounts that have been on your credit report for less than two years have the most negative impact. Older collection accounts that appear on your credit history still have a negative impact, but it is far less than the ones of the 24 month and under variety. Ideally, it is best practice to not let your accounts get to the collections phase; however, if they do, the sooner you do something to resolve them, the quicker your credit score can start to heal.
How long do negative accounts remain on my credit history?
You have begrudgingly accepted the fact that you now have accounts (assuming you have more than one) in collections and they are negatively impacting your credit score. The next big question that should come to mind is just how long will each of these negative impacting accounts remain on your credit history report? Generally speaking, negative accounts will remain on a person’s credit report for an average of seven years from the date of the account’s reported delinquency, according to Credit Sesame.
However, if you do have negative accounts on your credit report, you should do a little due diligence and check the statute of limitations for the state you live in; each state may have different lengths of time that negative accounts can remain on your credit report. Also, and this is very important, where the account was first opened (the state you lived in) is where the account falls under the statute of limitations.
For example, if you opened a credit card account while living in Georgia that goes into collections, but you now live in Texas — it is the statute of limitations from Georgia that apply to that account, not Texas.
What can I expect while having accounts in collections?
You now have accounts in collection, what can you expect? While having accounts in collections you can expect to be contacted, via mail, text, email, and/or phone calls, by the collection agency that now owns that debt. Most debt collectors prefer, almost to the point of obsession, the phone call. They will call whatever phone number they can find. They will call your home, your family, your friends, your employer (past and present). They will leave messages or not. They will call several times a day and will continue to call. The phone will be accompanied by the letter stating that “this is an attempt to collect a debt.” The debt collection agency is hoping to push you into paying this debt off, going so far as offering you potentially great discounts!
Do I have to pay a collection agency?
Well, I cannot tell you that. You must make your own decision as to whether you will work with and pay a collection agency. But before you do decide to pay, here is a little background on how the collection agency makes money. The collection agency buys debts from original creditors for pennies on the dollar!
Let’s say your original debt was $600. The original creditor then sold that debt to the third-party collection agency for $60. Now the collection agency is offering you a pay-off amount of $300, a 50% savings on the original debt. Sounds like a good deal for you and if you take it the collection agency makes a cool $240 profit. Keep in mind that paying it would end the collection letters and calls but it may not necessarily remove the negative account from your credit report — at least not immediately. Always remember that you have rights throughout this process and collection agencies must follow the law when attempting to collect a debt.
What is the fair debt collections act?
The collection process is not a one-sided affair by any means. There are rules and laws that collection agencies must follow. And if they don’t you do have certain legal recourses to take against them — that being the Fair Debt Collection Practices Act.
Going into great detail about this piece of legislation is beyond the scope of this article, however, I will give you some basics and broad overviews. Basically, a collection agency is not allowed to harass you in the attempt to collect the debt (at this point it should be noted that the debt is only alleged). You have the right to request the collection agency prove (in writing) that the alleged debt belongs to you. You have the right to demand that the collection agency not contact yourself, family, friends, or employers by telephone (this includes cell phones). You also have the right to demand that the collection agency not report any negative accounts to the three major credit bureaus. And if they already have, you can demand they immediately remove those negative reports.
All of this should be done in writing (not email) and tracked with certified mail. Also keep a record of all phone calls with day, time, and any other information. The reason for this is if they should sue you and you go to court, you now have evidence. There are financial penalties that the collection agency accrues for each violation of the Fair Debt Collection Practices Act.
Conclusion
Receiving a letter or a phone from a collection agency can be a downright terrifying event. No one likes to be hounded and hassled over a debt — especially when the very existence of the debt is in question. There is hope though. The Fair Debt Collection Practices Act levels the playing field by protecting consumers from harassing and intimidating collection practices employed by the less than reputable third-party collection agencies.
Obviously, the best way to avoid this is to keep all your accounts current with the respective creditors. And if you should fall on hard times, contact your creditors. They are far more likely to work with you if you are up front and communicate with them. Sticking your head in the sand to avoid your responsibility or an uncomfortable or embarrassing conversation is not a realistic solution. Everyone faces struggles from time to time. Just remember to keep moving forward because this to will pass.
