If you’ve been overdue or delinquent on your debt for a few weeks, your lender will try to contact you to get paid. As the months go by, they’ll assume you won’t pay and turn your debt over to a collection agency.
The calls and letters from the collection agency arrive, and now you know you must do something. You want to do the right thing. So how do you pay off debt in collections? And how do you navigate the collections process?
Having debt in collections can be trying, but it’s best not to avoid the situation. Taking control of the process and knowing your rights is one way to start. Below you’ll find some insights on how to pay off debt in collections.
What is a debt collection agency?
You might be wondering who, exactly, is calling you regarding your debt. In most cases, the person on the other end of the line works for a debt collection agency. A debt collection agency is a company your creditor hired to collect the money you owe on their behalf.
Debt collectors can be very persistent because most get paid according to the amount of money they get to collect. And every time they send you a letter or make a phone call they’re investing money on the collection effort. That’s why some of them can be very insistent and borderline (if not outright) aggressive.
Regardless of who’s behind the debt, debt collectors follow a similar pattern of persistent letters and calls. If you debt collector is engaging in particularly aggressive or rude behavior, know that there are laws that protect you.
Take control when your debt is in collections
Debt collectors must abide by the rules laid out in the Fair Debt Collection Practices Act (FDCPA). The FDCPA is a law that protects consumers from abusive debt collection practices.
Knowing these rules will help you prevent abuse or deceptive behavior from debt collectors and you’ll know how to respond if it does happen to you.
Debt collectors cannot harass, oppress, or abuse any person in connection with the collection of a debt. Specifically, they cannot:
- Threaten you with the of use of violence
- Use obscene or profane language
- Call you repeatedly or continuously with the intent to annoy, abuse, or harass you
- Call you without meaningful disclosure of their identity
- Represent or imply that nonpayment will result in your arrest or imprisonment
- Threaten to take any action they cannot take legally or that they don’t intend to take
- Use any false, deceptive, or misleading representation or means in connection with the collection of any debt
If any of the above happens to you, take notes on the name of the company, the names of the people involved, the amounts involved, what happened in your conversations with them and when it happened.
The CFPB is a U.S. government agency that enforces laws and protects consumers in the financial marketplace. They help get your voice heard and hold companies accountable for illegal practices.
Stay engaged with the collections agency
Before you answer collectors’ calls, though, it’s best to be prepared. Craft your debt repayment strategy (more on that below) and be ready to negotiate with your creditors to make the best out of a tough situation.
How to pay off debt in collections: Negotiate to pay your debt
Being proactive during the collections process is important because you want to convey to the collector your intention to repay and your willingness to work out an arrangement.
Not only that, the debt collector will assume the debt is valid if you don’t dispute its validity within 30 days of receiving their first notice.
Here are some of the things you can do to help you get prepared before speaking with them:
Ask the collector to confirm that you owe them the money
Even if you know that you owe the debt, you must make sure that the party on the other end is not a scammer posing as your lender. It’s important to verify that they’re working for your creditor or for the party that now owns the debt.
Request that they demonstrate this in writing. According to the FDCPA, the debt collector must send you a written notice of:
- The amount of the debt;
- The name of the creditor owed the debt;
- A statement to the effect that you have 30 days to dispute the debt before it’s assumed valid;
- An explanation that if you dispute the debt within those 30 days, the collector will obtain verification of the debt and mail it to you, and,
- A statement to the effect that the debt collector will provide you with the name and address of the original creditor, if it’s different from the current creditor.
Figure out what you can pay
Once you’re satisfied that the debt collector is legitimate, figure out the amount you can afford each month towards debt repayment. If you haven’t already done so, now is a good time to work out a debt repayment budget.
Our Shed Debt Faster guide can help you get organized and figure out the monthly payment you can make to pay off the debt in collections.
Ask your creditor to take back your debt
Your creditor has more flexibility to negotiate your debt than the collection agency. If the debt is still owned by your original creditor, it makes sense to deal with them directly. After all, you were their customer before, so why not keep you if you pay them back?
Collection agencies are in the business of getting money from you, not necessarily negotiating with you. Once you know how much you can afford to pay each month, contact the debt collector and ask for your creditor’s collections department number.
Negotiating with your creditor
If you creditor agrees to take the debt back, offer to make a monthly payment until you fulfill your obligation. This is the monthly payment you estimated you can make after completing your debt repayment budget.
Tell them about the work you’ve done in putting together an action plan that takes into consideration your income and expenses and stress that the monthly amount you are offering is what you can realistically pay.
Don’t agree to pay other amounts you aren’t comfortable with or that you know you won’t be able to pay.
Negotiating with the collection agency
If your creditor turned down your proposal, get ready to negotiate with the collection agency. The agency’s business model revolves around recouping money, so they may compromise for less than the full amount owed.
Here are two strategies you can follow, assuming your debt is unsecured, like credit card or medical debt:
Offer a settlement amount
In some cases, you debt collector may agree to settle for a lump sum lower than what you owe. Decide the maximum amount you will offer up-front. Once the collection agency sees your intent to pay, they will try to get more out of you.
If you get to a verbal agreement, make sure you formalize it in writing. That written confirmation should contain:
- An acknowledgment that the debt is no longer owed
- That the collection agency agrees to submit a form to Experian, TransUnion and Equifax to delete the negative information from your credit report
Often times, the collection agency will not agree to the second point, but it is definitely worth trying to keep the information from appearing in your credit report.
Offer a repayment plan
If you’re unable to offer a lump sum, or the collection agency won’t accept it, offer to make a monthly payment until you meet your obligation.
In addition, if you owe multiple debts and you make a single payment with respect to any of them, the collector has to apply the payment according to your directions and not apply the payment as they see fit.
If the collection agency agrees to your repayment plan, ask them for a written confirmation containing:
- An acknowledgment of the monthly payment you agreed to make
- Confirmation that they will re-age your account; that is, show no late payments if you stay current with the monthly payment
Additional things to keep in mind
» Lenders can increase your interest after you’re 60 days past due. For credit cards, if you’re past due more than 60 days, the lender can increase your interest rate on your entire balance to the penalty APR. If this has happened to you, ask the creditor to reduce your rate to help you repay faster.
» Ask not to be reported to the credit bureaus. If you’re early in the collections process, ask the lender not to report your account to the credit bureaus, especially if you already have a repayment plan to work with.
Impact of having debt in collections on your credit score
Many lenders rely on scores provided by FICO–which is a credit scoring company, to help them assess borrowers’ creditworthiness. FICO’s latest score version, the FICO Score 9, doesn’t consider third party collections. So whether you’ve paid your collections in full or not, it won’t have an impact on this score.
Unfortunately, many lenders still use the older version of the score; that is, FICO Score 8. In this version, any reported collection will remain on file for 7 years, counting 180 days from the date the account became past due, unless it’s removed.
The good news is that over time, if you stay responsible with your credit obligations, the negative impact on your credit score will subside.
» Further reading: 19 Ways to Improve Your Credit Score.
Bottom line
Having debt in collections can be stressful and unpleasant. Some debt collectors will try high-pressure tactics on you, and others may even be quite rude.
You’ll find that with a little determination you can make the best out of an unnerving situation and get out of collections.
