Life can easily get out of hand. Unemployment, an unexpected medical problem, a sudden increase in your cost of living, or family issues can seriously affect your finances. When things get tough, you may not be able to afford to pay all your monthly obligations. When loan installments or bills go unpaid, that is when they go to collections.
The first thing to do is to check what debts have gone to collections and verify that the amount the debt collector is requiring is the right one. You then can negotiate a payment plan with your creditor.
A debt goes to collections when a bill hasn’t been paid for about 30 to 180 days. The longer you leave your bills unpaid, the harder it is to recover, and debt collectors become more pressing. Instead of ignoring a debt in collections, which will hurt your credit score and put you at risk of legal action against you, it’s best to get a clear picture of your financial situation and negotiate a viable repayment schedule with your creditor.
What is Debt in Collections?
If a bill goes unpaid for 30 days or more, the unpaid sum goes to an internal collections department, which sends you reminders. If you still can’t pay for an extended period, typically ranging from 90 to 180 days, the debt is said to be in collections. The original creditor, such as a bank or a credit card company, may sell or send the debt to a third-party debt collection company.
The debt is typically sold at a discount and it’s up to the third-party collection company to make you repay the amount of money you owe, as they are now responsible for it. Because they have bought the debt at a discount, the more they manage to get out of you, the higher the profit they will make.
This stage is a significant escalation in the creditor's efforts to reclaim their money and often involves more aggressive tactics, including frequent phone calls and letters.
What Debts Go to Collections?
Many types of debt can end up in collections. The most common examples include credit card debt, personal loans, medical bills, utility bills, and even debt consolidation loans or balance transfer credit cards. Auto loans and mortgages can also be subject to collections if payments are severely overdue, although these types of debt might follow slightly different procedures because the vehicle and the house are secured loans.
Even unpaid bills from services like phone and internet providers can be sent to collections. Basically, any unpaid debt that has gone delinquent for a substantial period can be handed over to collection companies.
Ways to Handle the Collections Agency
Once the debt has gone to a collections agency, you will be notified of your debt through phone calls, emails, letters, and other means of communication. Debt collectors can become quite insistent and many debtors feel stressed by this pressure.
As a debtor, you are protected from excessive harassment and you deserve fair treatment by collection agencies. The main legislation governing these protections is the Fair Debt Collection Practices Act (FDCPA).
The FDCPA stipulates that debt collectors must treat you with respect and are prohibited from using abusive, unfair, or deceptive practices. They cannot contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m. unless you agree to it.
Additionally, debt collectors must identify themselves and provide information about the debt they are attempting to collect, including the amount owed and the creditor's name.
If you wish to stop the phone calls from a debt collection agency, you have the right to request this in writing. Upon receiving your written request, the collection agency must cease further contact except to inform you of specific actions, such as filing a lawsuit. This does not mean that the debt is forgiven, so you should find ways to repay it. It just provides relief from constant communication.
To stop the calls, you should send a "cease and desist" letter to the collection agency, preferably via certified mail with a return receipt requested, to have proof that they received your request.
Moreover, if you believe a debt collector may be violating your rights, you can report them to the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), or your state attorney general's office. You also have the right to sue a debt collector in state or federal court within one year of the violation.
How to Find the Collection Agency
If your debt remains unpaid for several weeks or months, it has probably been forwarded to a collections agency. You need to find how to contact the debt collections agency to negotiate a settlement with.
Check your credit report
Your first step should be to obtain a copy of your credit report from the three major credit bureaus: Experian, TransUnion, and Equifax. You are entitled to one free report from each bureau every year through AnnualCreditReport.com. Your credit report will list any debt in collections, including the name of the collection agency.
Contact your original creditor
If you are aware of the original creditor (the bank, credit card company, medical provider, etc.), you can contact them directly. Ask them to provide information about the debt, including whether it has been sold to a collection agency and the name of the agency that now holds your debt.
Look for correspondence
Debt collection agencies are required to send you a written notice, often called a "dunning letter," within five days of first contacting you about the debt. This letter should include details such as the amount of the debt, the name of the original creditor, and the agency’s contact information. Review any mail or email for such notices.
Review your voicemails and caller ID
If a collection agency has been trying to contact you by phone, check your voicemail messages and caller ID logs. Debt collectors usually identify themselves and provide contact information.
Debt validation request
If you receive a call from a collection agency but are unsure about the debt, you can request a debt validation letter. Under the FDCPA, you have the right to ask the collection agency to confirm the debt. The collection agency must provide you with details such as the original creditor's name and the amount owed. Send your request in writing within 30 days of their first contact.
Repaying Your Debt in Collections
Once you have verified your debt and confirmed that the amount is correct, you need to find ways to pay it.
Analyze your finances
Write down how much you earn after tax and all your living expenses. If there is room left after paying for everyday expenses, you should put this money towards repaying your debts. If you fall short, you must either reduce your expenses to leave space to pay off collections or increase your income.
Negotiate with the agency
If you find it difficult to repay your existing debt, you can negotiate with the agency.
You can agree to pay monthly payments that fit within your budget. Another option is to pay a lump sum payment, often at a reduced amount, to pay in full the debt. This requires saving up a substantial amount of money but can significantly reduce the total amount owed. Whatever the agreement you reach, you must have it in writing so that when the debt is paid in full, you know that you are debt-free. The agreement in writing should be accepted as ‘payment in full’.
Paying off Debt in Collections Affects Credit Score
Paying off collections can impact your credit score in a mixed way.
On one hand, settling the debt can prevent further damage to your credit and show future creditors that you are taking responsibility for your financial obligations.
However, the history of the debt being in collections will still remain on your credit report for up to seven years from the date of the first missed payment, which can negatively affect your credit score. Over time, as the account ages and you continue to make positive financial decisions, the impact of the collection account will diminish and paying off your debt will improve your credit score. Moreover, some credit scoring models, like the newer versions of FICO, may not weigh paid collection accounts as heavily as unpaid ones.
How to pay off debt in collections online
Dealing with debt online can save you time and is convenient. It’s a straightforward way to pay your financial obligations.
Check the collection agency
First, determine which collection agency holds your debt. You can find this information on your credit report, through correspondence from the agency, or by contacting your original creditor.
Visit the collection agency’s website
Once you know which agency holds your debt, visit their official website. Make sure you are on the correct and secure website by checking the URL and looking for security indicators like "https://" and a padlock icon in the address bar.
Create an account or log in
Many debt collection agencies have online portals where you can manage your account. You might need to create an account using your personal information and the account number associated with your debt, which can be found in the correspondence you received from the collection agency.
Locate the payment section
After logging in, go to the payment section of the website. This section may be labeled as "Make a Payment," "Pay Online," or something similar, indicating where you can make your payment online.
Choose your payment method
Most online portals offer multiple payment methods, including credit/debit cards, bank transfers, and sometimes even digital wallets. Select the payment method that works best for you.
Enter payment details
Enter the required payment details, including the amount you wish to pay.
Confirm and submit payment
Review your payment details to make sure everything is correct. Once confirmed, submit your payment. You should receive a confirmation message or email acknowledging the transaction.
Save payment confirmation
Keep a record of your payment confirmation for your records. This can be useful if there are any discrepancies or if you need to prove that the payment was made.
Monitor your account and credit report
After making the payment, check your account with the collection agency to confirm that your payment has been applied correctly. Also, monitor your credit report to confirm that the collection account is updated to reflect the payment.
Debt in Collections is Manageable
Having debt in collections is something that can happen to anyone, but you can and should deal with debt in collections before the collections practices become too aggressive. If you find yourself late paying bills and credit cards, you need to check your credit report and find the collections agency that holds your debt.
Once you know how much you owe the debt collectors, it’s easier to design a repayment plan either on your own or by negotiating with your creditors. Paying the debt in full is manageable if you can agree on a settlement. If you feel that your debt is overwhelming, or if you don’t know how to negotiate with your creditors, perhaps you need the professional advice of a debt relief company to find out about available debt relief options and get the best plan to pay off debts in collections.
The information provided is for informational purposes only and is not intended to provide financial advice. ClearOne Advantage does not provide financial or legal advice. Please consult a certified financial advisor for individual financial needs.
