Are you trying to figure out how to pay off debt in collections? Whether it’s because you didn’t have the money or just simply forgot, we’ve all had a bill go unpaid before. However, the problem is when these bills continue to go unpaid for whatever reasons, resulting in an account going into collections.
It could be credit card bills, utility bills, medical bills, or other kinds of bills. Having an account in collections can be frustrating. Not only do you have to deal with unwanted calls from debt collectors, but you have to deal with the after-effects.
The reduction in your credit score and derogatory marks on your credit report are just two of the things that you’ll need to address.
Though it can seem a bit overwhelming at first, there is a path to getting your finances back on track. In this article, I’ll share how to pay off debt in collections.
How to pay off debt in collections in 4 steps
Once an account goes into collections or becomes a charge-off, it’s important that you make an effort to get it resolved as soon as possible. Legally, debt collectors have the right to sue you for unpaid balances. Ultimately, this can result in garnishment of wages.
Don’t let it get that far. As soon as you are notified (or realize) that your account has been put into collections, you need to act immediately. Here's how to pay off debt in collections and get your finances back on track.
1. Gather and verify the information your debt collector has
An account that is in collections is one that your original creditor has sold to a debt collection agency. This means that you will now have to deal with the agency to resolve the balance owed.
Before you start paying off collections in response to their phone calls, it is important that you get all of the information regarding the account. In some cases, you’ll find that a debt has been associated with your name and social security number, although it may not be yours.
To ensure that this isn’t the case, you can legally request the statement information for the account. This should include the original creditor, original balance, account number, and any additional fees that have been added to the principal balance.
Cross-reference this with your credit report that you can obtain from each of the three credit bureaus. Review this information for accuracy and proceed to access the options that are available to you.
2. Review your options for your accounts in collections
It’s important to know that although your account may be in collections, you have options. Use the below list to find an option that’s most suitable for your situation. Educating yourself with the available options is how to pay off debt in collections efficiently.
3. Negotiate a repayment plan to pay off debt in collections
If the debt is indeed yours, you have the option of working out a repayment plan or negotiating a settlement for your account in collections. If you have the financial means, you may also elect to pay the account in full.
Before negotiating your repayment plan or settlement, it’s important to evaluate your current financial situation. Based on your current income and expenses, you need to calculate how much you can truly afford to pay on your debt each month.
After determining this number, explain your financial situation to the debt collector and begin negotiating a repayment or settlement plan that you can afford. Try your best to get a copy of the agreement in writing. Do not make any payments until you’ve received this documentation.
Additionally, you do not want these debt collection agencies to have access to any of your bank accounts. So plan to make your payments via money order or check. This way, you can start paying off collections without the fear of them over-drafting your bank account.
4. Monitor your credit
Just because you repay or settle an account in collections, it doesn’t mean that they will remove it from your credit report immediately. Typically, delinquent accounts will remain on your credit report for seven years from the original date of delinquency.
After this time, this derogatory mark will drop from your credit report. You should continue to monitor your credit to ensure they remove the debt. Although, there are other options available that can potentially shorten this timeframe.
How to Avoid Collections
So now you know how to pay off debt in collections, but it is important that you have a plan going forward to avoid having another account go into collections in the future. Here are a few things that you can do to avoid going into collections.
1. Create a budget that includes all of your bills
Out of sight can mean out of mind. Make sure you’re aware of every bill that needs to be paid and that it’s accounted for in your budget. Allocate funds toward it so that it gets paid. Remember to review your budget every month so you don't miss any bills.
2. Automate your bill payments
The easiest way to avoid having to pay off debt in collections is to automate your payments. Even if it’s in the budget, you can still forget to make a bill payment. That’s why I recommend automating your bill payments.
Setting your bills up to be paid automatically will ensure you don't miss payments. If you find that all of your bills fall into one pay period, contact your service provider and change the billing cycle.
3. Check your credit consistently for any suspicious accounts or inquiries
Leverage a credit monitoring service so that it will alert you of any changes right when they happen. You’ll know upfront if there is something on your report that shouldn’t be there, and you’ll be able to dispute it immediately.
4. Communicate with your creditors if you’re having trouble making payments
If you’re having trouble keeping up with your payments, call your lender immediately. Don’t wait until your account becomes delinquent to make a plan.
It may surprise you how much your lenders will be willing to work with you if you’re proactive. Working out a plan beforehand will prevent you from paying off collections down the road.
Disputing an account in collections
Having an inaccurate debt associated with your name can result from various reasons. Perhaps someone stole your identity. In which case, you’ll need to follow the identity theft protocol. Or, there may be someone with the same name as you whose debt has been incorrectly associated with your information.
If you find that the debt is not yours, you need to dispute it within 30 days. You can do this through the three major credit bureaus’ websites. That is Experian, Transunion, and Equifax.
Additionally, you should also provide a letter sent via certified mail to the collection agency with proof that the debt does not belong to you. At this point, the collection agency must be able to provide verification of the debt.
Know your Rights before you pay off debt in collections
Knowing how to pay off debt in collections is important, but you should also know your legal rights. Although you may have an account in collections, you still have rights as a consumer. There are laws governing what collection agencies can say or do. For more information on your rights, visit consumer.ftc.gov.
Learning how to pay off debt in collections will help you get back on track
Follow these steps and start paying off collections sooner than later. Remember to review your rights and be sure the debt is your debt before you pay.
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