Receiving a call from a debt collector can be stressful. You may feel confused about why the debt ended up in collections or anxious about how to pay it off. Fortunately, with some strategic planning, you can get back on track financially In this article, I’ll explain what to do when you need to pay a collection bill
Double Check You Owe The Debt
Before paying anything, verify the debt is legitimately yours. Collections errors happen surprisingly often. Check your credit reports and ensure the amount owed and other details are correct.
If you see mistakes, dispute them with the credit bureaus right away. You may also want to consult a credit counselor or lawyer if you have questions about the validity of a debt. It’s crucial to clear up any errors first since paying a debt validates it.
Calculate What You Can Afford
Next, review your budget realistically. How much can you afford to pay on this debt right now? Trying to commit to overly high payments could set you up for failure later.
On the other hand, paying off a collection lump sum typically gives you the most leverage to negotiate and minimizes long-term damage to your credit. Consider pros and cons as you decide what works best for your situation.
Contact The Collector
Use your credit reports to identify which agency currently holds your debt. Debts get bought and sold often, so check for the most up-to-date owner.
When you call, get written confirmation of any agreed upon payment plan or settlement. Make sure it specifies exactly what you owe, how you’ll pay, and how your credit reports will get updated.
Ask for the agent’s direct contact information in case you need to follow up later.
Make Your Payment
Once your paperwork is all in order, submit your payment. For proof, send a check by certified mail or pay by credit card then save the statement.
If your credit reports don’t reflect your payment properly later, this documentation can support disputes to correct any errors.
How Debts End Up In Collections
If you become delinquent on a debt, the original creditor may sell or assign it to a collection agency after 90-180 days typically. The agency then tries to recover what they paid to acquire the debt (usually pennies on the dollar).
Medical bills, credit cards, personal loans, and other debt types can all potentially go to collections if left unpaid long enough.
How Collections Impact Your Credit Scores
Having an account in collections severely damages your credit. It shows you broke your original payment agreements. Exact point drops vary, but could be over 100 points initially.
The collection stays on your reports for about 7 years from the first delinquency. But its negative impact lessens over time, especially if you eventually pay it off.
How Collections Affect You Legally
Collectors may sue for repayment within 3-6 years in most states, depending on statutes of limitation. If you ignore a court summons, they could get a default judgement to garnish wages or levy bank accounts.
Tips For Paying Collections
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Act quickly, and keep records of all communications. The longer you wait, the fewer options you’ll have.
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Negotiate – collectors may settle for 30-80% of the amount owed. Offer low, then meet in the middle.
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Avoid debt relief scams. Handle negotiations yourself or consult legitimate credit counseling agencies if needed.
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If collectors refuse to update your credit properly after payment, dispute the error.
Paying collections isn’t fun, but avoiding the situation longer typically makes it worse. Now that you understand the basics, you can start working on resolutions. With patience and diligence, these debts can get paid off so you can move forward financially.
Frequency of Entities
consumer credit bureau: 8
credit report: 11
debt collection agency: 6
credit score: 3
credit counselor: 2
How Does Paying Off Debt in Collections Impact Credit?
Paying off debt in collections may bump up your credit scores soon after you make the payments under newer scoring models, but not under older ones. Newer credit scoring models ignore collection accounts with a zero balance, which could help your score. But older credit scoring models, including the widely used FICO® Score☉ 8, take accounts in collections into consideration, whether or not theyve been paid off. That means paying off debt in collections wont improve your score.
A collection account remains on your credit report for seven years from the date the debt originally became overdue. After the seven-year window closes, the collection account is automatically removed from your credit report. Its not possible to get a legitimate paid-off or settled collection account removed from your credit report before the seven-year period ends.
Learn more >> Can Paying Off Collections Raise Your Credit Score?
Know Your Rights
It can be distressing and frightening to be contacted by debt collectors. But there are steps you can take to gain some control over the process. A federal law known as the Fair Debt Collections Practices Act (FDCPA) governs how debt collectors interact with you. Here are your rights:
- You can ask the debt collector to stop contacting you. In most situations, if you make the request in writing, a debt collector must stop reaching out to you (except to acknowledge that it will stop contacting you or to inform you that youre being taken to court). Putting a stop to collections-related calls, emails, texts, social media messages and letters can alleviate stress, but it wont make your debt disappear. Your debt in collections can still be reported to the credit bureaus, and the debt collector still can file a lawsuit against you to recoup its money.
- A debt collector cant be abusive, deceptive or unfair when its trying to collect money from you. For example, a representative of a debt collection agency isnt allowed to use crude language with you or to threaten jail time if you fail to pay.
- A debt collector cannot contact you before 8 a.m. or after 9 p.m. You can give your permission for a debt collector to contact you outside those hours if you choose.
- In some cases, debt collectors cannot call you at work. If you tell the debt collector youre not allowed to take phone calls at work, the calls must stop.
- You can file a complaint. If you believe the debt collector is breaking the law, you can file a complaint with the Consumer Financial Protection Bureau or your states consumer protection office.
- States have statutes of limitations for repaying certain types of debt. Your debt may be time-barred, meaning debt collectors can no longer sue you to collect it. This will depend on the type of debt you have and the state cited in your credit contract. The debt will remain on your credit report and you will still technically owe it, but the legal action a creditor can take is restricted. To find your states statute of limitations on debt, contact your state attorney generals office.
How Do I Handle Debts That Are In Collections?
FAQ
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