Dear Opening Credits,
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I am having problems making a monthly payment to a collection agency. My daughter has agreed to make the monthly payments for me. If she makes these payments, though, does she become responsible for this debt?
You probably are aware that you're a lucky man to have such a generous daughter, but you may not know that you are also fortunate to be working with a collection agency that accepts installment payments. They are under no obligation to do so.
Unlike a credit card company, whose business it is to extend lines of credit and allow their customers to make partial payments on the things they buy, collectors never lend money. Instead, they buy old debts from other creditors at a discount and then attempt to collect the full balance. The difference between the amount for which they bought the debt and how much they get is their profit margin. Collection agencies typically expect debtors to send the entire amount owed, immediately. However, in the interest of getting what they want -- the money -- some will allow the balance to be paid incrementally, as long as the debtor eventually pays the entire amount.
So what happens if you agree to make the monthly payment but then can't, only to be saved by an altruistic soul? Well, unless that person signs a contract with the collection agency agreeing that the account is now her legal responsibility, liability remains in the hands of the person who racked up the debt. In other words, even though your daughter is cutting the checks, she's safe from the collection agency coming after her if she can no longer assist. That should come as a relief to the both of you.
If you were receiving phone calls and letters before making payment arrangements, they will almost surely have stopped the moment the collector began to receive the money. But if you were also hoping to see a significant improvement in your credit rating, that will take some time. You'll really see the benefit when the account is completely paid off, since a zero balance on a collection account looks far better than one with money still owed. When you or your daughter send the final installment, the collection agency should report to the credit bureaus within a month or so that the debt has been satisfied. After that, it won't be long before you see your credit score begin to rise.
Still, don't expect a near perfect score anytime soon. Evidence of the late payments from the original creditor that led to the account going into collections will remain on your credit report for seven years. The date the account was charged off and sent to collections will also only be lifted after seven years has run.
Time does heal credit wounds, but if you're interested in helping your credit score edge up faster, you can use credit responsibly while your daughter is paying down your debt. If you have a credit card that is still active, you can charge a little here and there, and pay back the debt in full before the due date. This way you'll mend damage with active, positive use.
Then again, David, not everyone needs good credit. If you just want the old account out of your hair and your child is willing and able to step in and make that happen, great. In the meantime, I hope you can pay for what you need with cash and are saving for any emergencies that may come up, as well as preparing for your retirement. Getting into debt will impede those two very important financial goals.