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You’re in debt and you have no idea how you’re going to pay it off.
The due date passes by. You want to pretend your debt doesn’t exist. As the days and months go on, you’re delinquent on your loans and they end up in collections. Your credit is shot. The menacing calls begin and all you want is for them to stop.
Yet, while this is indeed a difficult situation, it’s one you can take control of and fix with the right actions. In this guide, we offer up ways you can pay off debt in collections. Take a look.
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What is a collection agency and why are debt collectors calling?
First, let’s discuss the cast of characters involved with debt collections.
There is the collection agency or credit collection service, which is a third-party company hired by a lender to collect an outstanding balance from a borrower. The collection agency then hires debt collectors, who are the actual people doing the dirty work and calling borrowers to get the money back.
Credit card debt, student loans, medical bills, utility bills and more can all go to collections. Business debt isn’t eligible for debt collections.
While debt collectors can take certain actions like call you at work, there are restrictions so that the hounding doesn’t become an abusive practice. For example, debt collectors can only call you during certain hours, in many cases between 8am-9pm.
How to find out which debt collection agency you owe money to
If you want to get out of debt collections, you need to pay money to the credit collection services agency.
But how do you know exactly who to pay and who the debt collection agency is? In some cases it might be clear but if not, here are ways to find out which debt collection agency you owe money to:
Contact the original creditor
If you know what bill is in collections, contact the original creditor for more information about your collections account. You can then ask which debt collection agency they are using and get the contact information. Then, contact the debt collection agency and ask how to proceed to get your payment in good standing.
Check your credit report
If you know you’re in debt collections but are unsure of which loans are not in good standing, you’ll want to get your credit report. Your credit report is a document that contains your full credit history, including outstanding loans that may be in debt collections.
Many debt collection agencies report to the three major credit bureaus — Experian, TransUnion and Equifax. You can access all three of your credit reports once a year at AnnualCreditReport.com.
Make sure you check all three as some debt collection agencies only report to one credit bureau, not all of them.
Answer the phone when bill collectors call you
In some cases, your debt collection fees won’t appear on your credit report. And sometimes, the debt can be passed onto other debt collection agencies, leaving you wondering who to contact.
In this case, you will likely have to wait until the debt collector calls you to get more information. It’s not fun and no one wants to deal with debt collectors on the phone. But if you’re unsure of who the debt collection agency is, answer the phone, get the information and ask how to get your loan in good standing. You’ll also want to get a debt verification letter and check your records to make sure you’re not overpaying as debt collectors can make mistakes too.
Three ways to pay off debt collectors
If you want to get out of collections and repay your debt, there are a number of routes you can take. Some of them may require negotiation and whatever you do, get everything in writing. Here are three ways to pay off debt collectors:
Negotiate a settlement with your debt collector
In some cases, you may be able to negotiate a settlement with your debt collector. A settlement is typically less than the amount owed and is used in exchange for deleting the account from your credit report.
You’ll need to get a letter in writing about the settlement terms before making your first payment. Make sure you understand your rights and responsibilities, and that you know the terms of the settlement.
Pay off the debt in full
If you have a small bill that is outstanding and in collections, you can choose to pay off the debt in full. Under this option, the good news is that your debt will be paid off. The bad news is that the collection account will remain on your credit report.
Create a debt repayment plan
If you can’t negotiate a settlement or pay the debt in full, you can talk to the debt collection agency about a debt repayment plan.
In this case, it’s important to make all of your payments on time and in full to get your loan in good standing.
What happens if you don't pay a collections agency?
If you have debt collectors hounding you, you might want to bury your head in the sand. Unfortunately, if you aren’t paying off collections, your problems will only get worse. Here’s why:
Your credit score will take a hit
The debt collection agencies report to the major credit bureaus. So, if you ignore them, your credit score may go down. This can make it more difficult to get approved for loans and may result in higher interest rates if you do get approved.
In some cases, you may be able to negotiate the mark off your credit report. If not, the negative entry will remain on your credit report for seven years. And remember: This can have a sweeping impact on every area of your financial life.
You may have late fees, making the debt harder to pay off
If your debt is in collections, it’s not just the outstanding balance you have to worry about. There could be additional late fees tacked onto your balance. All of the extra fees can add to the total cost of your loan, making it even harder to pay back.
Deal with your debt
Debt collectors have one job — to collect your debt. In order to do that, they will call you many times until they reach you. This can be stressful and annoying.
So, answer the phone and face the issue head on. Talk to your debt collector about your options, whether that’s a settlement, payment plan or paying it off in full. Make sure you get everything in writing.
It’s not fun and can be tough to deal with, but getting out of collections will help you breathe easier and free up stress. Once you do this, you’ll be able to focus on other financial goals like saving money and investing.