How To Pay Collections: A Complete Guide

All types of debt — consumer debt, credit card debt, auto loans, student loans — have one big thing in common: they go to debt collectors when you fall behind on payments.

Dealing with debt collectors is stressful, especially if they threaten to take legal action. But knowing how to pay collections can help you develop a plan to pay off your debt once and for all. Let’s find out how to pay off a debt collector and navigate collections safely.

What Is Debt Collection?

Debt collection is when a debt collection agency takes action to collect unpaid debt from borrowers. When a borrower defaults on a loan, which means they missed payments for a specified period of time, the lender can turn their account over to a collection agency. When this happens, the debt has gone to collections.

Any unpaid bills — loans, credit card debt, medical bills, utility bills, back taxes and more — can go into debt collection and a debt collector will go after you for payment. Debt collectors include agencies, lawyers and companies that buy overdue debts from creditors and other businesses.

However, there are laws in place that make it illegal for debt collectors to take abusive, unfair or deceptive actions when they collect debts.

What Happens When A Bill Goes To Collections?

The debt collection process depends on the company collecting the debt. But generally, the lender or creditor will get a collection company to collect the debt on their behalf or an agency will buy the debt from the lender. Unpaid debts typically go into collections around six months after the first missed payment, but this depends on the lender.

But the effect of unpaid debt begins even before it goes to collections. If you haven’t paid your bill during the lender’s grace period, usually 30 days, it’s considered delinquent. This is reported to the three main credit bureaus — Experian™, Equifax^® and TransUnion^® — and your lender will reach out to you for payment. Payment history makes up 35% of your FICO^® Score and a delinquent account can cause your credit score to drop by as much as 180 points.

Creditors can take legal action to collect what’s owed, including suing you, wage garnishment or seizing assets.

Your Rights, The Statute Of Limitations, Scams And The Rules For Debt Collectors

Under the Fair Debt Collection Practices Act (FDCPA), there are limitations on the actions of debt collectors who are attempting to collect unpaid debt. The law restricts how collectors can contact you and must give “validation information” about the debt either when they first communicate with you or within 5 days of first contact. Validation information is the collector’s name and mailing address, the name of the creditor you owe, how much you owe, steps you can take if you don’t think it’s your debt and your debt collection rights.

According to the FDCPA, debt collectors can call, private message you on social media or send letters, emails or text messages to collect the debt. The FDCPA makes it illegal for debt collectors to harass or threaten you, but the Consumer Financial Protection Bureau added a new rule that clarifies how debt collectors can communicate with you. Under the Debt Collection Rule, debt collectors can’t:

• Contact you before 8 a.m. or after 9 a.m. unless you agree.
• Contact you at work if you tell them you aren’t allowed to receive calls there.
• Contact you by email or text message if you ask them to stop.
• Call you more than seven times within seven days or seven days after talking with you by phone about an unpaid debt.
• Privately message you on social media if you ask them to stop.

If a debt collector does sue you and get a garnishment, they can take money from your paycheck and bank account to pay your debts. Most states also have a statute of limitations in place to prevent creditors and debt collectors from taking legal action on older debts, usually between three and six years.

Old debt doesn’t just disappear. You may still receive phone calls and letters from debt collectors attempting to collect debts after the statute of limitations expires so long as they do not violate the law when doing so. This debt is considered “time-barred.” If you make a partial payment or acknowledge you owe an old debt that’s considered time-barred, it could restart the time period.

Contact your state attorney general or the Federal Trade Commission to report scams or a debt collector doing something illegal.

How To Find Out Which Collection Agency You Owe

Collection agencies are required to report account activity to the credit bureaus. To find out which collection agency you owe, you can check your credit report from each of the three major credit bureaus.

You can get a free copy of your credit report from each credit bureau every week through December 2023 by visiting AnnualCreditReport.com, the only website authorized by the federal government to issue free credit reports. You can request your reports:

• Online at AnnualCreditReport.com
• By calling 1-877-322-8228 (TTY: 1-800-821-7232)
• By filling out the Annual Credit Report request form and mailing it to the address on the form

How To Pay A Debt Collector In 6 Steps

There are steps you can take to pay off debt from a collection agency.

1. Confirm That It’s Your Debt

Before you pay whatever amount the debt collection agency says you owe, you must confirm that the debt is yours. Debt collection scams are also common, and scammers can be extremely persuasive.

Request a debt validation letter, which details a specific debt. The debt collector must send this letter within 5 days of the first time they contact you. You should also verify this information by requesting copies of your credit reports. In this letter, you’ll find:

• The name of the original creditor
• Proof of the balance
• The age and amount of the debt
• Confirmation that the collection agency has the authority to collect the debt

You should also check the statute of limitations in your state. If you pay or acknowledge the debt after it expires, this could restart the clock, and the debt collector could take legal action against you.

2. Arrange Payments

The debt collector will probably offer a payment option, but you can negotiate a payment plan that fits within your budget. Even small payments are better than nothing.

Pay the Debt As A Lump Sum

If you can afford a lump sum payment, you may be able to negotiate with the debt collector to pay a certain percentage of your debt and have it erased from your credit report. If they don’t agree, they could still mark it as “paid in full.” Repayment is always easier when you pay it off all at once, but don’t choose this payment option if finances are tight.

Negotiate A Payment Plan

Most debt collectors will accept a payment plan you can afford. You’ll need to negotiate the number of payments required before debt settlement. Tell them how much you can pay each month. Debt collectors may also increase the interest rate or add fees to your debt if the original loan or credit agreement allows it and no law prohibits the increase. Consider contacting a credit counselor if you need help setting up a payment plan you can afford.

3. Document All Terms Of The Settlement

After you’ve agreed on a payment plan, you’ll need to document the terms of the debt settlement. Borrowers need to be careful about documentation, and that means having a written agreement including the agent’s name and contact information. Have them send you a copy of the settlement agreement with the specified conditions. If you can’t get the agency to delete the account from your credit report, the agreement will come in handy.

4. Make Payments Toward Your Debt

Once you have a payment plan that suits your financial situation and a settlement agreement regarding your collection accounts, you can make monthly payments to the credit collection agency. Make payments with a cashier’s check via certified mail. Also, make a copy of any correspondence with the collection agency and send it via certified mail. Request a return receipt to know your documents were received, especially after you send your final payment.

5. Get A Letter Of Completion After Your Final Payment

After you make all of your required payments, ask the agency for a letter of completion. This document is used to prove that your debt was paid in full. If you don’t know how to remove collections, the debt collector could come back and say you still owe money.

6. Check Your Credit Report

Debtors should always check their credit report and FICO^® Score throughout the process of paying off a debt to a collection agency. Once the debt is paid off, account changes should update within 30 days. Keep all personal finance records and documents related to the debt collection in case something comes up.

FAQs: How To Pay Collections Safely

Below are the most frequently asked questions on how to pay collections safely.

How do I pay off collections?

Confirm with the debt collection agency that the debt is actually yours and request a debt validation letter. Explore your payment options and get everything in writing. Begin making payments after you have a written agreement and document every single payment.

How do I pay collections and get a debt removed?

You can negotiate with the debt collection agency to either do a lump sum partial payment and have the debt removed from your account or set up a payment plan. Always get everything in writing and keep a record of every payment.

Can I pay collections online?

Many debt collection agencies offer online payment options. If you pay online, always request an email receipt.

Should I pay off collections in full?

If you haven’t passed the statute of limitations, paying your debt off in full can help you avoid wage garnishment. If the statute of limitations has expired, making a payment or acknowledging the debt could restart a new statute of limitations period.

What happens if I never pay collections?

Not only will not paying collections negatively impact your credit score and credit report, but the debt collector could also take legal action, and a judge could order a wage garnishment. This allows the debt collector to take money from your paychecks to pay off your debt.

Are there any options for paying medical debt?

If you have medical debt, you could negotiate interest-free payments directly with the provider. Contact the billing office to see if you can qualify for programs to help reduce your debt or get rid of it entirely.

The Bottom Line: Proceed Carefully With Collection Payments

Debt is serious business, and it doesn’t go away just because you ignore it. In fact, debt collectors can sue you in court if you don’t respond. It's important to understand how to pay collections in order to resolve the outstanding balances.

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