The Pros and Cons of Paying Off a Collections Account Versus Saving for Emergencies

The Pros and Cons of Paying Off a Collections Account Versus Saving for Emergencies

Personal finance is an area of one’s life that can be complex. Not all of us are good with money, and that often leads to debt. Debt can get out of hand and cause more problems than may be envisaged. One area that we want to look at is that of collections accounts: should you pay them off, and what benefit is there in doing so?

Also, rather than spending money paying off collections accounts, would you be better off saving that money for potential emergencies? Let’s start by looking at whether or not paying off your collections accounts will affect your credit score.

Will Paying Off Collections Improve My Credit Score?

If you watch this YouTube video it should give you some idea of why it may not be the best move to pay off collections accounts. Put simply, your credit score is determined by various factors. These include how you have run your credit accounts in the past, and what level of income you have, plus other spending patterns. Simply paying off a collections account may have no effect on the credit score, as it is just one element of your ranking.

It’s always worth talking to professionals in the finance field about the right thing to do when you are looking at putting your money somewhere. The choice between paying off collections accounts and keeping that money back for emergencies is a tricky one. Let’s have a look at why you may be better saving that money to one side.

Should I Save for Emergencies?

We are assuming here that you have some spare cash that you are considering putting into the collections accounts that are outstanding. This has the benefit of reducing your overall debt. That can be a good thing and does add peace of mind. However, let’s imagine a scenario in which an emergency occurs that requires some financial outlay – something not covered by your insurance policies.

Say your car is involved in an accident and the insurance does not cover all of the costs. You need that car, so you need to pay the excess amount. If you have recently paid any surplus cash to pay off collection accounts, it may not have improved your credit score. Therefore, you will not be eligible for a loan to pay off the excess to get your car back on the road. This is just one example in which keeping money back for emergencies may have been the better choice, as you then have the cash to pay for the repairs.

So, which is the best route: reduce your debt, or keep the money to one side?


Emergencies happen, and not only in relation to cars. Emergencies such as vital appliances breaking down – your air conditioning, for example – are such that you cannot prepare for them. Do the best thing and talk to finance professionals about your situation, and take their advice as they know the best way forward for you.