How to Pay Off a Debt in Collections
Key points about: paying off debt in collections
The Consumer Financial Protection Bureau has established rules and regulations third-party debt collectors must abide by.
The Fair Credit Reporting Act allows you to dispute any reported debt, and credit bureaus are legally required to investigate disputes.
A balance transfer credit card may allow you to consolidate credit card debt to a new card with a lower interest rate.
If you have an unpaid bill that’s overdue by several months to your creditor (for example, your credit card bill), they may move the outstanding debt to an in-house collections team or a third-party debt collector (a separate organization that your creditor works with to try to get you to pay an outstanding balance). This means your debt is now “in collections.”
Having a debt in collections can be a difficult time for anybody, but it’s important to remember that you still have protections, and there are many ways to pay off a debt in collections. Depending on how much debt you have and the types of debt, some options may work better than others. Here are some things to keep in mind if you’re wondering how to pay off debt in collections.
You’re entitled to information about the debt
If a third-party debt collector contacts you about your debt, there are rules and regulations they have to abide by, according to the Consumer Financial Protection Bureau.
First, they’ll have to tell you which creditor turned the account over to them and the amount owed, either in their initial conversation with you or in writing within five days of contacting you. If you don’t recognize the creditor, submit a written request to the third-party collector within 30 days, asking them to provide the name and contact information of the original and current creditor. The third-party debt collection agency must then cease efforts to collect the unpaid bill in your name until they’ve given you this information. This is true of a creditor as well. Remember, always keep a copy of your letter for your records.
You can dispute a debt on a credit report
The Fair Credit Reporting Act (FCRA) gives you the right to dispute any reported debt. It’s best to do so by registered mail and be sure to send it certified so you can get a notice of receipt. Or you can submit it online, but registered mail gives you a paper trail to refer back to.
Under the FCRA, the credit bureaus are legally required to investigate disputes. You can also dispute the debt directly with the creditor, which must investigate and respond to your dispute.
There are limits to how and when you can be contacted about a debt in collections
The Fair Debt Collections Practice Act (FDCPA) says creditors or third-party debt collectors may contact you, but they cannot send postcards or publicly announce that you have an account in collections.
Similarly, creditors and third-party collectors may use U.S. mail, phone, text messages, or email to contact you. However, they cannot call you before 8 a.m. or after 9 p.m. in your time zone, contact you at work if you tell them not to, or if they should know that your employer does not allow such calls.
In addition, under the FDCPA’s Debt Collection Rule, which went into effect in November 2021, debt collectors cannot call you more than seven times within a seven-day period, or within seven days after engaging in a phone conversation with you about a particular debt.
You can tell a creditor or third-party collector not to contact you
You can write a letter to your creditor or third-party collectors saying they must cease further contact. While they must honor your request once they receive your letter, the FDCPA does allow them to contact you with specific communication, including notification of legal action.
You may be able to negotiate to pay off the debt
A creditor or third-party debt collector may agree to a debt settlement to accept less than the total amount owed, but you should secure a written agreement of any negotiated amount or repayment plan you make with a collector before you make a payment. If you have multiple accounts in collections, you can specify the debt to which the payment you are agreeing to make will apply. There can be tax implications of settling a debt for less than the amount you originally owed, and settled debt may appear on your credit report.
If you can’t settle your debt for a lower amount, you could set up a repayment plan to pay the entire amount owed. A credit counseling service may be able to help you, or you can try to negotiate directly with the debt collector. This could allow you to pay what you can comfortably afford, and allow the creditor to collect what they are owed. Remember to keep a record of all of your communications.
Did you know?
There are also other options to help with credit card debt relief. If you have credit card debt on multiple cards, you could see if you qualify for a balance transfer credit card to consolidate your debts to a new credit card account with a lower interest rate.
Creditors can take legal action
Third-party collectors cannot make empty threats about seizing property or suing you to get you to pay your debt, but your creditors can take legal action in an attempt to collect from you.
How long a creditor can sue to collect a debt varies by state
States have different statutes of limitations for how long you can be sued in an attempt to collect on debts owed. Once the statute expires, you can’t be sued, but some creditors or collection agencies may still try to contact you.
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