- 7 min read
- When dealing with collectors learn your rights.
- Step I: Decide if you need to pay off the debt.
- Step II: Choose the right strategy to pay off debts in collections.
Pay Off Debt Even in Collections - Learn Before You Act
Catching up on old bills is not easy. Sometimes you are aware of bills that are past due and the creditor is attempting to collect on them. Other times, just when you decide to purchase a new car, or a new house, or refinance your mortgage, you decide to take out your credit report and you find a new collection item. Collection items are a drag on your financial health. At the best, accounts in collection lower your credit score, and make it impossible to get new credit or improve the credit you have. Even worse, you have to deal with collection calls, letters, threats of lawsuits, and sometimes harassment by collection agencies. If it is a struggle to pay your monthly bills, then collection items are a big straw on your financial back.
It is important to deal with delinquent accounts, because if collection items end up in court and a judgment is issued against you, then you may be subject to wage garnishments, bank levies and liens on your personal property.
No matter which stage you are in the collection process, it is important that you learn your rights. There are different ways to handle your accounts, and the right way will depend on your circumstances. Here are the steps that you need to take to pay off debt even in collections:
Step I: Decide if you should pay the debt.
- Verify that the debt is belongs to you.
- Verify that the debt is collectible.
Step II: Choose a method to pay the debt.
- DIY – negotiate a settlement and pay for delete.
- Seek out a debt settlement program.
Dealing with a Collector - Know Your Rights and Protect Them
Owing money is not a crime. If you have a contractual agreement with a creditor then you are bound to pay according to the terms of the agreement. This includes a credit card, utility, or telephone company, or many of the other places where you have taken a loan or not paid a bill. If you cannot or do not pay, then the lender has legal rights to ensure that it can collect the debt, including the right to sue you. Many times, big corporations and lenders sell their bad accounts to collection agencies, many times at greatly reduced prices. Unfortunately, the debt collection industry has many unsavory characters. There are laws that govern their behavior. The Federal Trade Commission issued a fact sheet for consumers, which includes these points:
- Debt collectors cannot harass or abuse you.
- Debt collectors are not allowed to lie or make incorrect statements.
- Debt collectors are not allowed to threaten you with arrest if you do not make a payment.
- Debt collectors are prohibited from giving to a credit agency, or anyone else, inaccurate credit information about you.
- "Debt collectors may not engage in unfair practices when they try to collect a debt."
If you are dealing with a collection agency, which you feel is not treating you correctly, then refer to the fact sheet for more details, including how to file a complaint. Don’t be bullied by a collection agency.
Step I: Decide if You Need to Pay the Debt
You usually know what you owe, but maybe there is an old bill that slipped your mind. Sometimes your original creditor sells an account to a collection agency. You may not recognize the bill. Take the following steps
- Check your credit report
- Validate your debt
- Check the Statute of Limitations
Check your Credit Report
Oftentimes you discover an account when you take out your credit report and this can be just when you want to take out a new loan. Remember to take out your credit report periodically. You are entitled to a free copy from each credit agency once a year, so stagger the requests so you receive one report at least every 4 month.
Quick tip #1:
Get your Credit Score for free.
Does the debt belong to you? - Validate the Debt
We have all heard of cases where fraudulent companies have demanded that people pay for debts that they do not owe. Anytime that you receive a collection letter, and you are not sure if it belongs to you, immediately send out a debt validation letter. For more information, including a sample letter, see the Bills.com article about debt validation. If there is a collection account on your credit report and you do not own it, then dispute the item.
Old debt – is it collectible? Check the Statute of Limitations (SOL)
An old debt may not still be collectible. That does not mean that the creditor cannot sue you. However, if the debt has passed the deadline, as established by state and or federal laws, then you will be able to make a defense in court to have the case thrown out.
Statute of limitations laws are complicated, involving different types of debts over different states. The SOL generally begins at the last date of activity in the account, although there are exceptions. You have to be especially careful not to re-age a debt, when speaking with a collector or collection agency. I recommend that you read the Bills.com article about statute of limitations, which contains a table outlining SOL laws by states. If you have a specific legal question regarding the SOL of one of your debts, then consult with an attorney experienced in consumer law.
Step II: Choose a Method to Pay Your Debt in Collections
You next step is to deal with the question of how to pay off debt even in collections. The basic strategies available depend on your financial capabilities and the amount of debt. You can choose between:
- DIY – negotiate a settlement
- Debt Settlement Program
DIY – Negotiate a Settlement
If you have sufficient sums to pay off the debt, then attempt to negotiate a settlement. In your beginning discussions, be careful not to re-age the debt, (for the purpose of the Statute of Limitations). When negotiating a settlement, it is best to make sure that you have a lump sum to offer. Paying off a collection item is often required before taking out new loans, especially mortgage loans. Your credit score has already been damaged by the late payments and delinquent status. Paying off a loan in full is a better record on your credit score, than settled; however, settling the debt is a big step forward.
Quick tip # 2: Contact one of Bills.com's pre-screened debt providers for a free, no-hassle debt relief quote.
Debt settlement Program
A debt settlement program can be an excellent solution, especially if your debt is large and you are having trouble making minimum payments. This type of program is especially effective if you do not have judgments against you, although it is possible sometimes to negotiate a settlement even if judgments have been made. Before doing a debt settlement, make sure that you receive a free consultation with a professional Debt Settlement company representative that includes a thorough examination of your financial situation and the pros and cons of the debt settlement program.
In a Debt Settlement Program, you stop making payments to your creditors, and make payments into a special designated account. Once the company negotiates a final settlement, you transfer funds to the creditor. Only then should the debt settlement company take its fees.
If you cannot afford to pay the debt and wish to protect assets, then consider a chapter 7 or a chapter 13 bankruptcy. Any bankruptcy is done under court supervision. A chapter 7 requires stricter hardship qualifications. Under a chapter 13 bankruptcy, commonly referred to as a wage earner’s plan, allows you to pay back your debts over a 3-5 year period. During this time, collection efforts are halted. All bankruptcies involve complicated legal technicalities. Always consult with an experienced bankruptcy lawyer before proceeding with a bankruptcy.
Paying Your Debts Even in Collections
Even if you debts have reached collection, you can still deal with them successfully. Be careful, and do not hesitate to use professional help, including a reputable debt settlement company or an experienced lawyer. Collection is stressful, and do let collectors bully you. Your rights entitle you to fair treatment, with honest representations and no harassment.
Validate your debt and check the statute of limitations to see if you really need to pay it off. Then choose the right debt relief program or strategy appropriate to your financial needs. Use the Bills.com Debt Coach to help you find the best debt relief solution for your personal financial situation.
Struggling with debt?
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2023 was $17.503 trillion. Student loan debt was $1.601 trillion and credit card debt was $1.129 trillion.
A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by Urban.org from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.
Each state has its rate of delinquency and share of debts in collections. For example, in New York credit card delinquency rate was 3%, and the median credit card debt was $420.
To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.