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How To Pay Off Collections: A Complete Guide

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In a Nutshell

If you are being contacted by debt collection agencies or other types of debt collectors, then you have several options to choose from to protect yourself. But don’t ignore those letters or phone calls just because you can’t pay the debt right now. Keep in contact with your creditors and let them know where you stand so that they know that you are actively trying to work with them.

Written by the Upsolve Team.  Reviewed by Attorney Andrea Wimmer
Updated July 26, 2021


If you have unpaid debts and are unable to keep up with your payments, your debts will eventually charge off. This means that your original lender will write off your debt and turn your account over to a collection agency. From then on, you will deal with the collection agency and make any future payments to them. 

Dealing with a collection agency is different from dealing with your original lender. Collection agencies can employ a variety of tactics to get you to pay off your debt, such as wage garnishment and lawsuits, among other things. But you can still win in many instances. Here’s how. 

What’s Debt Collection?

Debt collection is the effort a lender or debt collection agency makes to get a delinquent borrower to repay some or all of the debt they owe. When a debt goes into collection, the borrower may be contacted in several ways, including telephone calls, written correspondence, and even notice of lawsuits being personally served in some cases. Debt collectors have several tools to recoup the money owed. Wage garnishment and asset repossession following entry of a judgment are two examples.

When Do Debt Collection Agencies Get Involved?

When a borrower gets far behind in their debt payments, the lender usually sends their account to the collections department. This typically doesn’t happen until the borrower is at least three payments behind, and sometimes even more than that. But for most lenders, there’s a point when it becomes more profitable to simply write the debt off and turn the account over to a collection agency than to keep trying to get the money back. 

If your lender has been trying to reach you because you’re delinquent in your payments, it’s wise to talk to them to see whether you can work out an arrangement instead of letting your account go to collections. In all likelihood, your lender will eventually sell your debt to either a collection agency or a company that buys debts. This will create a blemish on your credit report and lower your FICO or credit score. This all happens in addition to any late payments that will have already appeared on your credit report. 

What Types Of Debt May Go Into Collection?

Virtually any type of debt can be turned over to a debt collection agency today. The types of debt that these collection agencies take include:

  • Credit card debts

  • Medical bills and other types of medical debt

  • Car and auto loans

  • Student loans

  • Utility bills

  • Library fines

  • Personal loans

  • Back taxes

Yes, even the IRS has turned over a large number of its delinquent accounts to aggressive debt collectors. This is in the hope that they can capture at least a portion of what’s owed to them. Taxpayers who are delinquent can expect to hear from one of these agencies sooner or later. 

Impact Of Debt Collection On Credit Scores

Having an account sent to collections is never a good thing for the borrower, especially when it comes to credit reporting. In most cases, the borrower’s credit score will drop when this happens, even if it’s the first time. And this negative item on their credit report will stay there for the next seven years. 

About a third of a borrower’s credit score is based on their payment history. If the borrower has missed several payments and is chronically late, this can bring down their score substantially. With a lower score, it will be harder for the borrower to qualify for other types of loans or credit during that time, and they will be charged higher interest rates than other borrowers with higher credit scores. 

A lower score may also prevent the borrower from qualifying for some types of employment. Most banks and insurance and investment companies run credit reports on anyone who applies with them. Having a low credit score can also make it more difficult to find housing. Most landlords will run a credit check on prospective tenants to see whether they have a stable payment history. But some of the newer credit scoring formulas being used today such as VantageScore 3.0 and FICO 9 will not reflect an account that is sent to collections if the delinquent debt is paid in full. 

There are also a few ways that borrowers can get a collection account off of their credit reports. First, check your credit reports to see whether the information recorded there is accurate. If it is not, then you have the right to dispute the information on the report. You can report the error to the credit bureaus and contest the facts stated on the report. The credit bureaus must usually respond within 30 days of the dispute being filed. If they do not, then that information can automatically be removed from your report. 

Even if the debt in question does belong to you, there may be late payments assessed or other details that are not correct. If the credit bureau cannot validate these facts, then that information must be removed from the report. The borrower can also write a polite letter to the credit bureau or the creditor asking for a goodwill removal of the debt from their credit history. Some bureaus and lenders may be willing to grant this if the borrower can show a good reason for asking for this. 

What To Do After Being Contacted By A Debt Collection Agency

If you’re contacted by a debt collection agency, start by carefully checking all of your records against what the debt collector tells you. You’ll want to verify that the debt is valid and that it’s yours. You should also check the amount of the debt, the date the last payment was made, the date or dates that the debt was incurred, and the total balance of the debt. 

To respond to the debt collector’s notice, you must send a letter to the debt collector’s attorney. You may want to hire a lawyer yourself if you can afford to. A good lawyer may be able to help you contest the debt in ways that you aren’t aware of now. But if you lose the case, then your creditor has the authority to take the measures described above. 

The next step is to respond to the debt collector or debt collection agency. In most cases, you’ll have about 20 to 30 days to do this. If you fail to respond within that time frame, the creditor can file a judgment against you. If they sue you and win, the creditor can garnish your wages, freeze your bank accounts, or take possession of some or all of your personal property.

Whatever you do, don’t ignore the notice your creditor sends you warning of the coming hearing. If you don’t show up to the hearing, the judge will automatically rule against you and grant the creditor the authority to take the measures described above. You may also lose the right to dispute the debt from then on, even if it proves to be erroneous. 

Check to see if the statute of limitations has passed. If it has, then the debt is no longer collectible by the collection agency or anyone else. You’ll need to check with your state to see when the statute of limitations is up for the type of debt in question. This is important because many debt collection agencies and other types of debt collectors will threaten to sue a delinquent borrower after the statute of limitations is up. They do this in the hope that the borrower won’t contest it. And in many cases, they end up collecting at least some of the debt. If you make a payment on this type of debt, then the statute of limitations resets and starts over again. 

Verify The Debt

Verify that your name and the names of any other cosigners are correct. If your name is misspelled, then the debt may not belong to you in the first place. For example, you could have been a victim of identity theft, which is rampant in the U.S. If any part of the information that the collection agency tells you is wrong, then you can use the discrepancy in your defense. You can send a written request to the debt collector asking them to provide you with the information to back up their claim and prove they are able to collect the debt from you.

In many cases, your information has been passed from your original creditor to another debt collection party, and this is where mistakes can happen. Make sure that the information they give you is correct. You can double-check the information against your credit report. Remember that you can download a free credit report for each of the three credit bureaus once a year. 

Know Your Rights

Even if you truly owe the debt a collection agency or debt collector is trying to collect on, you still have rights as a consumer under the Fair Debt Collection Practices Act (FDCPA). This legislation restricts debt collectors from calling before 8 am and after 9 pm locally. They also cannot use any form of threats, intimidation, obscenities, or coercion to collect their debts. 

Your state or locality may have additional laws governing debt collection. Visit your state attorney general or local website for more information on this if you have any questions. The Consumer Financial Protection Bureau can also usually tell you about any additional statutes that apply to you. You can also access resources online from the Federal Trade Commission to learn what your rights are as a consumer. And beware of debt collection scams; some unscrupulous predators try to pose as debt collectors to get you to pay them. 

Review Your Budget

It may be possible to persuade your creditor to postpone further legal action if you can work out a payment plan that can be completed in a reasonable timeframe. You may also be able to negotiate a lower debt amount with your creditor in some cases. If you can show why you have not been able to pay your debt, then your creditor may be more amenable to giving you additional time to pay it going forward. 

At this point, it is important to carefully review your budget to see what kind of payment you can make. It needs to be an amount that you can safely make each month because if you default on your payments again, you may face further legal action. So go through your budget and see where you can cut costs elsewhere so that you can make a reasonable payment regularly. 

Make Your Payment

When it comes to paying your debts, you essentially have three options. The first option is to pay the debt in full. For most people, this isn’t possible. If you had the money to pay, you would have paid before your account went to collections. But if you have come into a sum of money since that happened, then paying your debt in full is probably the best option. 

It is certainly the best option from a credit score point of view, as it can erase any mention of your delinquent account in some cases. And, of course, there will be no more phone calls or letters from the collection agency or other types of legal action to worry about. Your credit score may or may not improve, but you can at least stop worrying about this debt for good.

The second option is to make monthly payments over time. This is probably the most commonly used option because most debtors can make at least a small payment every month. This is generally considered to be the next best option if you cannot repay the debt in full with a lump-sum payment. But making payments can also give the debt collection agency more time to sue you, especially if you miss a payment or two. 

The third option is to settle your debt for a lesser amount. This alternative can have a lasting effect on your credit score in some cases. For example, if you owe $10,000 to a debt collection agency, you may be able to get them to accept a lump-sum payment of $3,000 instead of paying the entire balance. However, the collection agency may send you a Form 1099-C at the end of the year. In this example, they could send you this form showing that you had $7,000 of debt forgiven during the year. You would then have to report that amount as taxable income on your tax return, even though you didn’t receive that amount in cash. 

Debt settlements can also be difficult to negotiate in many cases, as creditors will want to get as much as they can from you. You will most likely have to show the debt collector some financial records that prove you are unable to pay the full amount and can only cover the proposed settlement amount. If you find yourself in this situation, a qualified credit counselor can help. Credit counseling can also help you to create a workable budget and stay on track with your overall finances. A good credit counselor may also help you with debt consolidation, paying off old debts, or making partial payments instead of full ones until you get back on your feet. 

Regardless of which option you choose, it is important that you meticulously document each payment and the terms of any agreements you reach with your collectors. You should also write a summary of any phone calls you make or receive from your creditors so that you can use this as evidence in court if necessary. Also, save all correspondence that you get from your creditors for the same reason. Finally, debtors should always check their credit reports after making payment arrangements to ensure that the payments being made are being properly documented and reported. Contact your debt collector immediately if this is not happening. 

What If I Can’t Pay The Debt Collection Agency?

If all else fails, you can prevent creditors from seizing your property or garnishing your wages by filing bankruptcy. If your income will be higher going forward, then you may want to look at filing Chapter 13 bankruptcy. This type of bankruptcy will require you to pay off all of your debts over the next five years according to a specific payment plan prescribed by the bankruptcy court. It will stay on your credit report for seven years. 

But if you are completely unable to repay any of your debt, you’ll likely benefit most from a Chapter 7 bankruptcy, which completely eliminates all of your debts with a few exceptions (explained below). This type of bankruptcy will stay on your credit report for 10 years, although your credit score can start improving within months of filing. 

Of course, there are some types of debts that can’t be discharged by filing for bankruptcy. Back taxes usually cannot be eliminated, except for some old tax debts. Government-backed student loans also won’t be eliminated unless you qualify for a hardship exception. And you must continue to pay any type of court-ordered payment, such as child support, alimony, or any type of legal restitution even after you file bankruptcy.

Let’s Summarize...

If you are being contacted by debt collection agencies or other types of debt collectors, then you have several options to choose from to protect yourself. But don’t ignore those letters or phone calls just because you can’t pay the debt right now. Keep in contact with your creditors and let them know where you stand so that they know that you are actively trying to work with them.



Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney Andrea Wimmer

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Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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