Before you pay a debt to debt collectors, make sure it belongs to you.
Confirm the Debt is Yours
Do not make any payments to a debt collection agency until you confirm that the debt is yours. Check your records to verify the accuracy of the stated balance, and contact the original creditor to ensure you are dealing with the correct debt collection agency.
Check the Collection Laws in Your State
Each state has a law that sets a maximum time for actively collecting a debt. However, in some states, you can reactivate the debt if you contact the collection agency or make a partial payment.
Know Your Rights in Debt Collection
According to the Fair Debt Collection Practices Act (FDCPA), there are restrictions on how debt collection agencies can communicate with you. They are prohibited from calling you between 9 PM and 8 AM, cannot call you at work if you tell them not to, and cannot disclose your debt to anyone else, such as a co-worker. They also cannot harass, threaten, or verbally abuse you.
Determine What You Can Afford
Before deciding how to pay off your debts, you will want to review your budget and financial situation to assess what you can reasonably pay. Look at your monthly cash flow and determine how much you can allocate to debt repayment or settlement, and adjust your budget as necessary to cut down on discretionary expenses like streaming subscriptions or cable packages.
Request Deletion of Your Account
If you can make a large one-time payment, you can ask the collection agency to delete the debt from your credit report. If the debt collector does not agree, you can request that it be marked as “Paid in Full.”
Set Up a Repayment Plan
If you cannot pay a large amount all at once, you can ask the collection agency to set up a repayment plan that you can afford. You will need to negotiate the number of payments required before the debt is settled.
Negotiate Medical Debts
If you have medical debts, you may be able to negotiate interest-free payments directly with the provider. First, call the billing office and inquire if there are any qualifying programs that you can take advantage of to eliminate or reduce the balance.
Pay the Debt
Once you reach a written agreement with the collection agency to pay the debt, you will proceed to pay the debt.
Document Everything
Borrowers should be diligent about documenting anything related to debt collection agencies. Once you begin talking to a collection agency, jot down the name of the representative, contact information, and what was discussed.
What to Do After You Make the Final Payment
After you complete the repayment plan or pay the large amount, request a completion letter from the collection agency. Then, check your credit reports to ensure that the account is updated correctly – but note that changes may not appear for up to 30 days. Even after everything has been updated properly, keep your records in a safe place in case any issues arise later.
Conclusion
Paying off debts takes time and effort. It may take a lot of work to pay off your debts and improve your credit score. However, the effort is worth it when it means improving your financial health in the long run.
If you are struggling to pay off a debt in collections on your own, you may consider getting a debt consolidation loan if your credit score allows or if you can find a reputable person to work with you. This will not eliminate your debts, but it may help you pay less in interest and simplify the process.
Bitterness
Regardless of the payment option you choose, take the additional steps to confirm your debt and obtain the proper paperwork to protect yourself now and in the future.
Frequently Asked Questions
How does debt end up in collections?
Every lender has guidelines on how many payments a borrower can miss before going into default. With some lenders, the debt is considered in default as soon as the borrower misses one payment. With others, you will be charged late fees on the initial missed payments before the lender takes further action. It typically takes three to six months before a creditor marks your account as default. Once the debt is in default, the creditor may attempt to collect the money themselves or sell the debt to a collection agency.
Does debt collection affect your credit?
Any payment to a creditor that is more than 30 days late can appear on your credit report as a negative entry. A late payment can remain on your credit report for up to seven years. Every event affects your credit score because payment history makes up 35 percent of your total score. Once the debt goes to collections, it can be added to your credit report as a separate account. Your account will be marked as in collection when the debt is sent to collections. Although the exact point drop varies from person to person, most consumers will experience a significant decrease in their credit score, often hundreds of points. However, the impact of these entries will diminish over time, especially if you rely on positive financial habits.
What happens if you don’t pay a debt in collections?
If you don’t pay a debt in collections, at best, your credit score will be affected for seven years, and you will continue to be contacted by collectors until the debt is resolved. The best-case scenario is likely only if your debt is small enough that it’s not worth the time and effort for the collection agency. Collection agencies can sue you and may seize your wages or take your assets, such as your home if you lose in court.
How do you avoid debt collection scams?
Debt collection scams are real, and scammers may use your anxiety about debt to pressure you into paying. Be wary of alleged collection agents who refuse to provide information, contact you late at night, threaten jail time, or ask you to pay using a prepaid card. Verifying your debt and the collection agency’s right to collect your payments goes a long way in protecting you from potential fraud. Do not give anyone access to your bank account. Instead, pay with certified checks and keep detailed records of your payments and your original agreement.
Does debt collection legally affect you?
If you do not respond to the collection agency within a certain time frame, they can sue you in court. This time frame varies from state to state, so check your state regulations to find out how long the agency has to sue you. If the collection agency wins in court, they may have the right to garnish your wages. Wage garnishment means they can contact your employer and request a portion of your paycheck be sent to them. They may also place liens on any property you own, such as your home. In this case, you may not be able to sell the home while the lien is in effect, and your creditor may also be able to foreclose on your home through a court judgment.
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