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How to Pay Off Debt in Collections

5 min read

Last Updated: December 4, 2024

Table of contents

Key Takeaways

The federal government has rules and regulations third-party debt collectors must abide by.
Federal law allows you to dispute any reported debt, and credit bureaus legally must 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

Debt collection practices can be aggressive. But when 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 (CFPB).

First, they’ll have to tell you the original creditor that 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.

When you request information about your creditor, the third-party debt collection agency must 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.

You can submit your dispute online, but registered mail gives you a paper trail if you need to refer to it. Under federal law, credit bureaus must investigate disputes to be compliant. You can also dispute the debt directly with the creditor, which must investigate and respond to your dispute.

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. You should compare offers to find the best credit cards for a balance transfer.

There are limits to how and when you can be contacted about a debt in collections

The Fair Debt Collections Practice Act (FDCPA) states that creditors or debt collection agencies may contact you. Creditors and third-party collectors may use U.S. mail, phone, text messages, or email to contact you.

A few things creditors are legally prohibited to do when they contact you:

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
Contact you at work if they know that your employer does not allow such calls
Send postcards
Publicly announce that you have an account in collections

In addition, under the CFPB’s Debt Collection Rule:

Debt collectors can’t call you more than seven times within a seven-day period
Debt collectors can’t call you 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 collection agency saying they must cease further contact. Creditors must honor your request once they receive your letter, but the FDCPA does allow them to contact you with specific communication about your collection account (like notification of legal action).

You may be able to negotiate to pay off the debt

A creditor may agree to a debt settlement and accept less than the total amount you owe. It’s best practice to secure a written agreement of any negotiated amount or monthly payment plan you make with a collector before you make a payment. If you have multiple debts in collections, you can specify which account your payment should go to.

Did you know?

There can be tax implications of settling a debt for less than the amount you originally owed, so it’s a good idea to check with a tax professional before filing your taxes.

In addition, settled debt may appear on your credit report and reflect in your credit score.

If you can’t settle your debt for a lower amount, ask about a repayment plan to pay the entire amount owed. A credit counseling service may be able to help you with a debt management plan, 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 creditors to collect fully on what you owe them. Remember to keep a record of all your communications.

Once your debt is paid, make sure your creditor or collections agency reports this to each credit bureau so it no longer appears on your credit report.

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 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 a creditor can sue you to collect debts. Once the statute of limitations expires, a creditor cannot sue you. Note that some creditors or collection agencies may still try to contact you, so you’ll want to be familiar with your local laws.

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