how to pay off debt in collections

Have a debt in collections? Paying off debts in collections

No one wants to hear that they have a debt in collections. Here are the best ways to deal with paying off a debt collector. 

If you are delinquent on a debt, you may be contacted by a debt collection agency. 

Debt collection agencies will contact you to get you to pay back that debt. Debt collectors may contact you to collect on a variety of types of debt including student loans, credit card debt, auto loans, personal loans, and more. 

Debt collectors will contact you by letter or by phone call after buying that debt from the original creditor. Before dealing with debt collectors, there are a few things to know before paying them or agreeing to pay off the collection account. 

The first step in dealing with debt collectors is to first understand how your debt got there in the first place and that you actually owe the debt you are being asked to repay.

Continue reading for more information about paying back your debt collector. For more information about debt collectors and how to deal with them, check out our guides on dealing with collectors and on debt relief. If you’d rather leave it to the experts, download Cambio for a free credit analysis. Dealing with debt collectors is our specialty!

how to pay off debt in collections

Check to see if you actually went delinquent on the debt and owe them money

Before you just get to paying off debt in collections, always double-check that you actually owe the debt in question. Look back at your credit reports and gather all details possible about the debt.

Remember, accidents and errors do happen and lenders will sometimes make mistakes. These mistakes can range from the amount you owe to the person who owes it and may even include wrong information being reported to the major credit bureaus. 

Monitoring and checking your credit reports is key to ensuring everything on them is accurate, If you see any false information on your credit report, dispute it and get it taken off of your credit report. 

See how much you can afford to pay on the debt

So, if you do, in fact, owe that money and need to repay the debt, the next step is to see if you can actually afford to pay it back. Look into how much you can actually afford to pay back before even speaking to the debt collector. Once repayment terms are set, you need to uphold the agreement, as it can reset the timeline of your liability for the debt.

There are a few different options to choose from when deciding how to repay a debt:

Lump sum payments

If you afford to pay off the debt in collections all at once, this is a great option if you want to resolve the collection quickly. It is also more cost-effective to deal with a debt in collections this way, as it gives you the ability to negotiate your payment down.

However, negotiating the debt down may have less of a positive impact on your credit score.

Monthly payments

If a lump sum payment is not possible, negotiating an installment payment plan will help manage the financial impact of repaying the debt. This will allow you to spread out the payments over a set period of time, where you only have to pay back the debt in a set monthly payment. However, this may increase the amount of time the collection stays on your credit report. 

Contact the debt collector or debt collection agency

Now you are ready to contact the debt collector. Although it is expensive, you may opt to have a third party to manage this step of the process. If you decide to go this route, ensure they are a reputable resource, as it can actually damage your credit even more and put you at risk legally. 

If you want to contact the collector yourself, check your most up-to-date credit report to see who you need to contact. Once you have the collector on the phone, remember to ask the following, in addition to agreeing on repayment terms:

  • The debt collector’s name and contact information – This is just in case you need to contact that specific agent again.
  • Updates to your credit report – In the best case scenario, the collector will agree to removing the paid account from your credit report. If this isn’t possible, see if they can at least update the delinquent account to, “paid as agreed upon” after you pay off the debt per the repayment agreement.
  • Written copies of the agreement – This should include information about repayment information and the agreed upon updates to your credit report.

Make the payment

Only make your payment after receiving the written agreement from the collector and have reviewed it in detail. After this you can finally take the steps to repay the debt.

Be sure to read everything in its entirety to make sure you can and can prove that you have repaid the debt based on the terms set. Documentation in these situations is key to help you prove that you have repaid the debt and can help you in the future if your credit report is not updated as agreed upon in a timely manner.

Other important things to note

There are a couple of other great tips to keep in mind when dealing with a debt in collections:

Debt collectors cannot harass you.

The Fair Debt Collection Practices Act states that a debt collector cannot act in any way that would result in harassment, oppression, or abuse. This includes threats, repeated phone calls, and calling outside of normal work hours or at inconvenient times. 

You can try and negotiate with the collector.

Because debt collectors are purchasing these debts for pennies on the dollar, you may be able to negotiate the amount you owe them by offering them less than they ask for. If the debt is close to the statute of limitations expiration date, you have a lot more power to negotiate and make a settlement on the debt. 

However, these settlements may have a negative impact on your credit or impact the amount of taxes you owe.

How do collections impact your credit?

Unfortunately, having a collection reported to one of the three major credit bureaus can have a significant negative impact on your credit score. Because your payment history is one of the most impactful considerations when determining your credit score, a significantly delinquent account can have a huge impact on your score.

This is even more so if you already have a good or great credit score. It is important to note that a collection can stay on your credit report for up to seven years. However, the impact it has on your score will decrease over time, as eventually the collection will drop off or will be removed from your report. If you’d like to explore how to repair your credit at the lowest rates online, Cambio can help you repair your credit.

Bottom line

No one wants to get a phone call or letter from a debt collector. However, they are not something to be ignored, as hiding from the debt’s original lender or the debt collection agency can make things a lot worse.

It is best to deal with these issues as they arise and to not prolong the issue. Neglecting it does not mean it will just disappear. By repaying back the debt, you are working to not only repair your credit but also of the future of your finances.

At Cambio, we provide you the easiest path to rebuild your credit and get your credit report back on track. 

Let Cambio deal with your collectors. Get a FREE credit analysis today!

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