Key takeaways

  • Before you pay a debt in collections, confirm that it belongs to you.
  • If the debt doesn’t belong to you, send a dispute letter to the debt collector.
  • Check your state’s statute of limitation on collecting debt and reactivate an expired debt before moving forward.
  • Contact the debt collector to negotiate a payment plan and make payments. Make sure to put the terms of the agreement in writing.

Debt collection is when a third party — often a debt collection agency — works to collect unpaid debts owed to another company or organization. If you’ve fallen several months behind on a debt, your account has likely been sold to a collections agency for pennies on the dollar. That agency will start contacting you to arrange for payments.

Having a debt go to collections can be scary, embarrassing and stressful, but it’s more common than you think. According to the Consumer Finance Protection Bureau’s most recent third-party debt collection report, 23.5% of Americans had debt in collections as of the first quarter of 2022. Here’s what you need to know about paying off debt once it’s gone to collections.

Confirm that the debt is yours

Don’t make any payments to a collection agency until you confirm that the debt belongs to you. Check your records to ensure that the stated balance is correct, and contact your original debtor to make sure that you’re working with the right collection agency.

Mistakes happen, so confirming that the debt is your responsibility is a necessary first step. Does it seem like the debt isn’t yours? Send a dispute letter to the debt collector within 30 days of them contacting you. Once a debt collector receives a dispute letter, they must stop trying to collect from you until they can send a written confirmation of the debt, like the original bill.

Check your state’s statute of limitations

Each state has a statute of limitations, which sets a maximum time limit during which the debt can be actively collected. However, in some states, you can reactivate the debt if you contact the collection agency or make a partial payment.

Confirm your state’s rules before taking further action, and check that the debt hasn’t been discharged through bankruptcy or any other means.

Know your debt collection rights

According to the Fair Debt Collection Practices Act (FDCPA), debt collectors are limited in how they can communicate with you. They’re prohibited from calling between 9 p.m. and 8 a.m., they can’t contact you at work if you’ve told them not to, and they can’t tell anyone else, like a coworker, about your debt. They also can’t harass, threaten or verbally abuse you.

If a debt collector violates these rules, remind them of the FDCPA. You can also report them to the Consumer Financial Protection Bureau online (CFPB) or by calling 855-411-2372.

Figure out how much you can afford to pay

Before deciding how to pay off your debt, you’ll want to take stock of your budget and finances to assess how much you will reasonably be able to pay. Look at your monthly cash flow and determine how much you could put toward debt repayment or debt settlement, adjusting your budget as necessary to cut back on optional expenses like streaming subscriptions or cable packages.

Ask to have your account deleted

If you can afford to pay a large lump sum, you can ask that the collection agency delete the debt from your credit report. If the debt collector doesn’t agree, you can request that they mark it as “paid in full.”

Either of these changes will improve your credit score and make it easier for you to qualify for another loan. Not all collection agencies will agree to this exchange, but it’s always worth asking.

Set up a payment plan

If you can’t pay a large lump sum, you can ask the collection agency to create a payment plan you can afford. You’ll need to negotiate how many payments will be required before the debt is settled.

Negotiating medical debt

If you have medical debt, you may be able to negotiate interest-free payments with the provider directly. First, contact the billing office and ask if there are any programs you qualify for that can eliminate or reduce the balance.

Next, ask about your repayment options. If you’re not getting anywhere, ask to speak to a manager.

Make your payment

Once you and the debt collector have reached a written agreement to pay off the debt, you’ll make your payment.

The most secure way to pay a debt collection agency is by mailing a check with a return receipt. This will prove that the collection agency accepted the check. It costs $2.20 for an electronic receipt and $3.55 for a mailed receipt. These receipts will be handy if the collection agency claims you didn’t make a payment.

Document everything

Borrowers need to be diligent about documentation regarding debt collectors. As soon as you start talking to a collection agency, write down the agent’s name, contact information and what you discussed.

If you agree to a settlement with specific conditions, have them send you a copy of that agreement in writing. You may have trouble getting them to delete the account from your credit report without a written contract, even if they verbally agreed to it.

What to do after you make your last payment

When you finish your payment plan or complete the lump sum, ask the collection agency for a letter of completion from a company signatory. Then check your credit reports to make sure that the account has been accurately updated — but note that changes may not be reflected for 30 days. Even after everything is updated correctly, keep your records in a safe place in case any issues arise later.

The bottom line

Paying off collections takes time and diligence. It can take a lot of effort to pay off your debt and improve your credit score. Yet, the work is worth it when it means improving your financial health in the long run.

If you’re having trouble paying off a debt in collections on your own, you may consider taking out a debt consolidation loan if your credit allows it or if you can find a qualified co-signer. This won’t eliminate your debt, but it may help you pay less interest and simplify the process.

No matter which payment option you choose, take the extra steps of confirming your debt and getting the appropriate paperwork to protect yourself both now and in the future.

Frequently asked questions

  • Every lender has guidelines on how many payments a borrower can miss before they’re in default. With some lenders, a debt defaults as soon as the borrower misses a payment. With others, you’ll be charged late fees on your initial missed payments before the lender takes additional action. Typically, it takes three to six months before a creditor marks your account as default. Once the debt is in default, the lender may try to collect the money itself or sell the debt to a collection agency.
  • Any payment to a creditor at least 30 days late can appear on your credit report as a negative entry. A late payment can stay on your credit report for up to seven years. Each event hurts your credit score because your payment history equals 35 percent of your total score. Once a debt goes to collections, it can be added to your credit report as a separate account. Your account is flagged with a collection status when the debt is transferred to collections.While the exact point drop varies from person to person, most consumers will see a major decrease in their credit score, often several hundred points. However, the impact of these entries will decrease over time, especially if you adopt positive financial habits.
  • If you don’t pay off a debt in collections, in the best-case scenario, you’ll have your credit score dinged for seven years and continue to be contacted by collectors until the debt falls off. The best-case scenario is only likely if your debt is too small to be worth the collection company’s time. Collections agencies can and will sue you and potentially garnish your wages or seize your assets, like your home if you lose in court.
  • Debt collection scams are real, and scammers may use anxieties about debt to pressure you into paying. Watch out for supposed debt collectors withholding information, calling you late at night, threatening jail time or asking you to pay with a prepaid card. Confirming both your debt and the collection agency’s right to your payments goes a long way in protecting you against potential fraud. Never give anyone access to your bank account. Instead, pay with certified checks and keep detailed records of your payments and your original agreement.If you think a debt collector has broken the law, report them to the CFPB. You can also sue them in federal court within one year of when they broke the law.
  • If you don’t respond to a debt collector within a certain period, they can sue you in court. This time varies by state, so check your state regulations to see how long an agency has to sue you. If the debt collector wins, they may receive the right to garnish your wages. Garnishing wages means they can contact your employer and ask that a portion of your paycheck be diverted to them. They may also put a lien on any property you own, like your home. In this case, you would be unable to sell the home while the lien is in effect, and your creditor might also be able to foreclose on your home with a court judgment.