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.