In a Nutshell After reviewing your budget and creating a payment plan, find the debt collection agency’s information by looking at your credit reports. Your debt may have been bought and sold by multiple agencies, so checking your most-current reports is crucial.
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Getting a call or letter from a collections agency can be stressful. You may be unsure how the debt ended up in collections or confused about how to resolve it. Paying off collections accounts properly is important for your financial health. This guide explains how paying collections works and provides tips for handling collections wisely.
How Debts End Up In Collections
If you fall behind on paying a debt like a credit card, medical bill, or utility bill, the original creditor may eventually give up on collecting from you directly At that point, they will likely sell or assign your debt to a collections agency
Common signs that an account has gone to collections include
- Getting phone calls or letters from a collections agency demanding payment
- Seeing a new account appear on your credit reports with a “collections” status
- Noticing the original creditor has closed your account or otherwise stopped contacting you
Collections agencies buy old debts for cheap – often just pennies on the dollar. They make money by collecting all or some of the amount you owe.
Check If You Really Owe The Debt
Before paying a collections account, it’s important to verify that you actually owe the amount claimed. Collections agencies do make mistakes, so you shouldn’t just assume the debt is valid.
To verify a collections debt:
- Review your credit reports and check the details like the amount owed and the reporting date. Make sure the debt collector contacting you matches the company listed on your report.
- Request validation from the collections agency proving you owe the debt. They are legally required to provide this if you dispute the debt within 30 days of their first contact.
- Search your records from the original creditor to confirm you incurred the debt and verify the amount.
If you find discrepancies, dispute the debt right away before making any payments.
Know Your Rights With Debt Collectors
The Fair Debt Collection Practices Act regulates how collections agencies can conduct business. Key protections include:
- Debt collectors cannot harass, oppress, or abuse you when trying to collect.
- They cannot lie or mislead you about the debt.
- They cannot threaten actions they don’t intend to take, like filing a lawsuit.
- They cannot discuss your debt with others without your permission.
- They cannot contact you outside reasonable hours.
If a debt collector breaks these rules, you can report them to the Consumer Financial Protection Bureau. It’s also wise to consult a consumer rights attorney. Never let an overly aggressive collector pressure you into agreeing to something you aren’t comfortable with.
Determine What You Can Afford To Pay
Review your budget to see what you can reasonably afford to pay on the collections debt. It’s important not to agree to payments you can’t actually make. Defaulting on a payment plan can lead to more collection calls, lawsuits, and damage to your credit.
If funds are very tight, consider prioritizing basic needs like housing, food, transportation, and utilities first. You may need to seek credit counseling or legal advice if you cannot afford your minimum payments.
If possible, avoid using high-interest credit cards or predatory payday loans to pay off collections debt. This often makes the financial hole even deeper.
Explore Your Payment Options
You essentially have two options when paying collections accounts – lump sum payment or installment plan:
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Lump Sum – Paying the full balance at once saves money on interest and fees. It also gives you leverage to negotiate a settlement for less than the full amount. However, it can be difficult to come up with a large lump sum all at once.
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Installment Plan – Making regular monthly payments allows you to pay off the debt over time. But this takes longer and the debt stays active on your credit longer too. Interest and fees also continue growing.
Paying even a portion shows good faith effort. But beware – partial payments can renew the statute of limitations period, delaying when collections efforts must end. Get any payment agreements in writing.
Contact The Debt Collector To Pay
To settle collections accounts, you’ll need to contact the debt collector directly. Get their up-to-date contact info from checking your credit reports. Ask the representative:
- What are the options to repay this debt?
- How much is currently owed including fees?
- Will you remove the account from my credit report after I pay?
- Can I have this payment plan agreement in writing?
Get everything in writing before sending payment. Paying doesn’t guarantee the account will be deleted from your credit history, but you can negotiate this.
Make Payments Safely
When ready to pay, use a method like certified mail or money order that provides proof of payment. This creates a paper trail in case the collector tries claiming you didn’t pay.
Never pay collectors with prepaid gift cards or other unusual forms of payment – this is often a red flag for a scam.
Ideally, pay collectors directly and avoid debt settlement companies charging hefty fees. If you do use a settlement company, research them thoroughly first.
Other Options Beyond Paying
If you truly cannot pay, don’t ignore calls and letters from debt collectors. This only makes the problem worse. Consider:
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Negotiating a settlement – Offer to pay a smaller lump sum (sometimes 30-50% of the amount) to settle the debt. Be sure to get any negotiated deals in writing first and document your payment.
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Filing for bankruptcy – As a last resort, bankruptcy can eliminate certain debts under court supervision. This negatively impacts your credit but stops collections calls.
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Disputing the debt – If you have evidence the debt isn’t valid, start the dispute process in writing. The collections agency must then validate the debt.
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Waiting out the statute of limitations – If the statute of limitations has expired, collectors cannot sue to collect in most states. However, the debt still impacts your credit until it falls off your credit reports.
Paying Collections And Your Credit
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Paying a collections account does not remove it from your credit reports. It will continue appearing with a negative status for up to 7 years.
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However, as the account ages, the impact on your credit scores gradually decreases. Keeping other accounts in good standing also helps offset collections damage.
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After paying, ask the debt collector if they will agree to update the account status to “paid” or “resolved” rather than “unpaid” or “in collections”. This looks better for credit scoring.
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If you negotiate a pay-for-delete agreement, the collector will remove the account from your reports entirely after payment. But they are not legally required to.
Create A Debt Payoff Plan
Creating a plan helps you methodically repay collections and other debts:
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List all debts with balances and interest rates.
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Prioritize paying high-interest debts first while making minimums on the rest.
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See how much money is left after covering necessities like housing, food, utilities.
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Divide any extra income among your debts for repayment.
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Try to pay more than the minimums on all debts.
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As debts are paid off, put those amounts towards the next highest debt.
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Avoid taking on new debt that isn’t absolutely necessary while paying old debts.
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Monitor your credit reports regularly and dispute any errors.
Get Free Credit Counseling Assistance
Nonprofit credit counseling agencies likeNFCC.org provide free assistance with managing debt, creating household budgets, negotiating with creditors, and more. Their certified counselors can offer guidance on developing a personalized debt payment plan.
Getting the right help and information makes dealing with debt collectors far less stressful. With persistence and healthy financial habits, collections accounts can eventually become just an unhappy memory as you rebuild improved credit.
A call from a debt collection agency is a call nobody wants to receive. But if you become significantly delinquent on a debt, you may need to deal with a debt collection agency in order to pay back the money you owe.
Before we go any further, let’s agree on one thing: Unpaid debts can be stressful and confusing. You may not even be sure how your debt ended up with a debt collection agency in the first place. But it’s important to look beyond the potentially intimidating letters and phone calls to understand what’s really happening — and come up with a solution that works for you.
In this article, we’ll go over how to make a payment to a debt collection agency. Here’s a basic outline of the steps, in case you’d like to jump ahead.
Looking for more information related to debt collection agencies?
After we go over these steps, we’ll review how a debt ends up in collections and how debts in collection affect your credit.
Is it legal for a debt collector to harass you?
No! According to the Fair Debt Collection Practices Act, “a debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.”
If you’ve been receiving threats or repeated, annoying phone calls, we recommend consulting with a legal professional before proceeding with a debt payment plan. You can also report any problems you have with a debt collector to your state Attorney General’s office, the Federal Trade Commission and the Consumer Financial Protection Bureau. If your state has debt collection laws that differ from the Fair Debt Collection Practices Act, your Attorney General’s office can let you know exactly how they differ.
How Do I Handle Debts That Are In Collections?
FAQ
Should I pay a bill that went to collections?
Yes, you should still pay a debt even if it has gone to collections. Here are a few reasons why: Credit Impact: Unpaid debts in collections can significantly harm your credit score. Paying the debt can help mitigate further damage and may even improve your score over time.
Can I pay a bill in collections online?
You should be ready to pay once you’re sure that the debt collector’s written confirmation of what you agreed to is correct. Many collection agencies have an online payment option. If you pay debt collection online, be sure that you get an email receipt.
What is the most secure way to pay a debt collector?
The best method of payment will prevent a debt collector from having access to your financial accounts. For that reason, a money order is your best option. Be sure to keep a carbon copy and receipt.
Should you pay collections with a debit card?
Always pay via Cashier’s Check or Money Order. Do not provide your debit card, credit card, or checking accounts, EVER. They`ll drain it if given the chance.
How do I pay off a debt in collections?
Take time to think through your options to pay off a debt in collections. Debt collectors may pressure you to take action quickly. Don’t pay, don’t promise to pay, and don’t give any payment information the collector may use later. Ask for information on the debt and say you’ll call back to discuss it later.
Can a debt collector make a payment?
The debt collector will probably offer a way to pay, but you can work out a payment plan that works for you. Even small payments are better than nothing. If you can make a one-time payment, you might be able to work out a deal with the debt collector to pay off a certain amount of your debt and have the rest taken off your credit report.
What should I do if a debt is in collections?
Confirm that the debt in collections is real and yours. Check the statute of limitations on the debt. Tell the collectors not to contact you. Make a plan to pay off the debt. Contact the collection agency and make payments. That’s all there is to it. And it sounds pretty simple.
What is debt collection & how does it work?
Another business or debt collection agency tries to get you to pay the money you owe. This is called debt collection. If you haven’t paid for a few months, your debt may be sold to a collection agency, which will call you to make payment plans. Dealing with debt collectors can be stressful and embarrassing, but it’s common.
What happens if a debt goes to collections?
When this happens, the debt has gone to collections. Loans, credit card debt, medical bills, utility bills, back taxes, and other bills that aren’t paid on time can be sent to debt collection, and someone will come after you to get the money. Debt collectors include agencies, lawyers and companies that buy overdue debts from creditors and other businesses.
How do I send payments to a debt collector?
There’s a right way and a wrong way to send payments to a debt collector. The best approach is to protect your financial information and thoroughly document the process. Here are a few tips: Payment method. The best method of payment will prevent a debt collector from having access to your financial accounts.
