Naturally, everyone wants to make their payments on time. But occasionally, life has different ideas. Unfortunately, paying your payments late happens frequently.
More than one in four of the accounts that Credit Sesame customers have are either charged off or in collections right now. Consequently, the creditor either engaged a debt collector to recover the money owed by these customers or completely wrote off the debt as a loss because they were so far behind on their payments.
At Credit Sesame, the majority of the past-due accounts we come across are linked to larger credit accounts like student loans, auto loans, credit cards, and so on. However, a third of them—a shockingly large number—come from a different kind of account:
- Mobile devices
- Health services
- Domestic utilities
What distinguishes debt for utilities, medical bills, and cell phones?
Credit cards and loans, which are more common kinds of debt, provide monthly reports about your payment history. These kinds of accounts, as long as you make your payments on time, aid in the development of sound credit while you manage the account sensibly.
Not the case with utility, medical, and cellular debt. Unless and until the creditor has unfavorable information to record, these payments typically do not show up on your credit report:
Late payments Chargeoffs Collections
In other words, paying your power, gas, or cell phone bill won’t help you improve your credit. Paying the payment late can ruin your grade.
It’s likely damaging you if one of those accounts appears on your credit record.
How much damage do utility, hospital, and cell phone debt collections do to your credit?
To determine how harmful these debts actually are, we chose to examine a sample of 5,000 anonymous Credit Sesame members who hold these kinds of loans.
Assemblages of cell phones
The average monthly cost of a cell phone is $100 or more. It is understandable why some people struggle to make ends meet. By choosing a pay-as-you-go plan or a budget carrier like Cricket or Republic Wireless, you can reduce your cell phone bill.
Unfortunately, the harm has already been done to a lot of Credit Sesame members.
Average balance in a cell phone collection account: $939
It’s simply untrue that younger consumers are more prone to experience financial difficulties while purchasing phones. The average amount of members’ cell phone collections is higher among those in their 40s.
Average for participants in their forties: $1,019
Your credit will be severely harmed by cell phone debt. The highest level of terrible credit is reached by these members’ average credit score, which is only 550.
Collecting of utility bills
Sadly, there isn’t always much of an option when it comes to your utility provider. This makes comparison shopping challenging.
Most individuals are aware that paying your utility bills is probably more crucial than paying your cell phone bill. This could be one of the factors contributing to the average utility collection balance being less than half of the average cell phone collection amount.
Average balance in utility collection accounts: $414
Here, too, we observe some intriguing ages-related tendencies. In general, utility collection debt for customers under the age of 40 is around $68 higher than for customers over the age of 50. Maybe as we age, we are less concerned about losing the food in the refrigerator when the lights go off.
Utility debts that are in collections hurt your credit score. With an average credit score of 542, these Credit Sesame customers fall squarely into the bad credit category.
According to a Harvard research, medical debt is one of the main reasons people file for bankruptcy. Therefore, it should come as no surprise that medical bills have the largest sums among all obligations that only provide negative information.
Three accounts with an average balance of $3,670 each are used for medical collections.
Compared to other age groups, Credit Sesame customers in their 50s have by far the most debt. Age-related increases in medical expenses make it no surprise that older people have bigger debt loads.
$9,308 on average for members over the age of 50
$2,958 on average for participants in their 20s.
It’s interesting to note that men have debts for medical expenses that are in collections that are twice as large as those of women.
Men’s average: $6,364
Women’s typical income is $3,465
With this type of debt, the typical Credit Sesame user has a credit score of 552. We are once more discussing bad credit.
What actions may I take if my accounts are in collections?
If you have accounts in collections, it may not seem like the end of the world right now, but it is not. You can get better with some time and effort.
Create an emergency fund that can last for at least one month first (three months if possible).
Second, if you can, pay off your debt.
The most recent FICO® scoring model penalizes you for unpaid collections but not for paid ones. When you settle the past-due accounts, your score should rise.
On how to make a strategy to pay off debt and save money at the same time, check out our wonderful tutorial.
Next, make an effort to reach a debt settlement with your creditors. However, you should make sure you completely comprehend the conditions and ramifications of the settled debt because, in some circumstances, the amount that has been forgiven will be reported to the IRS as taxable income.
Get assistance if you find this intimidating. A nonprofit credit counselor who is NFCC-certified can work with you one-on-one to create a strategy and payment schedule that works. Credit counseling is either free or inexpensive.
The counselor can assist you with creating a debt management plan as well. In order to create a strategy that will get you out of debt in three to five years or less, they will work with your creditors to negotiate lower fees and interest rates. One payment will be made to the plan by you, and the plan will then distribute the money to your creditors. The plan can save you a lot more time and money, not to mention your sanity and self-confidence. The service often needs you to pay minor fees to launch and maintain the account.
All you have to do now is wait after paying off or settling your debt. Seven years after the date of the last activity on the account, this blemish will automatically disappear from your credit record. Additionally, after the collections account has been fully paid, certain creditors and collection agencies will consent to immediately stop reporting it. Make a mental note to check it later to ensure that the account has truly been removed from your credit record. After then, you can continue living the rest of your life with credit!