How to pay off a debt in collections

Debt collection happens when another company or debt collection agency tries to get you to pay the money you owe. If you’re behind on payments for several months, your debt may be sold to a collection agency that will contact you to arrange payment.

Dealing with debt collectors can be stressful and embarrassing, but it’s common. In response to the pandemic, consumer debt grew a lot, starting at $15.85 trillion at the beginning of 2022 and going up to $16.90 trillion by the end of the year. This is $2.75 trillion more than the end of 2019 before the pandemic.

Dealing with collectors doesn’t have to be an overwhelming process if you know how to navigate and resolve debt that has entered collections efficiently and effectively.

How to pay collections strategically

There isn’t necessarily a wrong approach to paying off debt. Yet, some common challenges can be easily overcome with the right knowledge. Here’s how to pay off collections strategically and confidently.

As you move through this process, document everything. Keep copies of letters, emails, payment receipts and any agreements made with the collector. Your documentation serves as a record of your efforts and protects you in case of disputes or inaccuracies.

1. Confirm the debt is yours

Before taking any action to pay off a debt in collections, it’s crucial to verify that the debt belongs to you. Gather all relevant information about the debt, including the amount owed, the creditor and any associated fees or interest. This ensures that you only address financial obligations that belong to you.

If you find that the debt is not yours, take steps to protect your finances in case your identity was stolen. If this isn’t your debt but is being reported to the credit bureaus, learn how to dispute errors on your credit report.

If you don’t recognize the debt, make sure you know the signs of a debt collection scam.

2. Know your debt collection rights

Educate yourself about your rights under the Fair Debt Collection Practices Act (FDCPA). This federal law regulates how creditors and debt collectors can interact with you regarding debt collection. When you know your rights, you can protect yourself from unfair or abusive practices.

For example, the collector is not allowed to:

• Call you between 9 p.m. and 8 a.m.
• Contact you at your workplace if you’ve requested they refrain from doing so
• Disclose your debt to anyone else, such as a coworker

Debt collectors are also strictly prohibited from harassing, threatening or verbally abusing you.

If a debt collector breaches these regulations, remind them of the FDCPA. You can also file a complaint with the Consumer Financial Protection Bureau (CFPB), either online or by calling 855-411-2372.

You may also be protected under the Department of Financial Protection and Innovation’s (DFPI) California Consumer Financial Protection Law (CCFPL) and Debt Collection Licensing Act (DCLA). Both measures play a part in consumer protection.

3. Check your state’s statute of limitations

Each state has a statute of limitations determining the legal time limit within which creditors or debt collectors can sue you for an unpaid debt. Statutes of limitations typically range from three to six years on average, though they can extend up to 10 years in some cases.

Understanding this timeframe is essential as it impacts your legal obligations and rights regarding the debt. Research the statute of limitations in your state to know your rights.

Moreover, it’s important to know that you can reset the clock on old debt if you:

• Agree to pay
• Get a bankruptcy discharge revoked
• Make a new charge on the account
• Make a payment

So, avoid these actions until you’re legally responsible for paying the debt. If you find that you are not legally responsible for the account in question, it might be helpful to remove old debt from your credit reports.

4. Understand the debt details

To develop the best repayment plan, you need to be fully aware of what you’re repaying. Get clarity on every aspect of the debt, including:

• Any potential errors or discrepancies
• The origin of the debt (original creditor)
• The validity of the debt

Review statements, correspondence and any agreements related to the debt.

Do your research on the specific type of debt you’re facing. When you understand the nitty-gritty details, it empowers you to make informed decisions about how to resolve the debt.

5. Determine collectability

Research and assess whether the debt is still legally collectible. Factors such as the statute of limitations and legal ownership of the debt can influence its collectability.

What type of debt is it? If the debt is old, it could be zombie debt. If so, you may want to handle it differently than if it’s a newer, valid debt.

Medical bills under $500 may not appear on credit reports. For now, this threshold can vary, so check with the specific agencies or your health care provider to understand how medical debts are reported and managed.

Keep an eye on changes to the laws. For example, the CFPB has recently proposed that medical debts be removed from credit reports altogether. This wouldn’t make them uncollectable, but might impact your repayment strategy.

6. Negotiate a settlement with the collector

Once you’re informed, negotiate with the collector to reach a mutually agreeable settlement. Be prepared to discuss your financial situation honestly and explore options such as a lump-sum payment or structured repayment plan. Effective negotiation can often lead to a reduced amount or favorable payment terms.

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

7. Set up a repayment plan

If paying the debt in full upfront isn’t possible, discuss setting up a repayment plan with the collector. A structured repayment plan lets you make regular payments until the debt is resolved. Make sure the plan aligns with your budget to avoid financial strain.

To formalize the agreement, establish a written payment plan with the collector. Be sure to outline the payment schedule, the amount due and any other important details. A clear plan reduces misunderstandings and ensures both parties follow the agreement accurately.

You might also be interested in how to set up a debt payoff plan and stick to it.

8. Make your payment(s) as agreed

Once you’ve agreed on a payment plan with the debt collector, make sure you send your payment(s) promptly. This shows your commitment to resolving the debt and helps avoid further collection actions.

For payment security, consider mailing a check via USPS with a paper return receipt for $3.65 or an email receipt for $2.32. A return receipt provides proof of delivery with the recipient’s signature — essential if there’s a dispute over receipt of payment. Alternatively, you can also request a “Certificate of Mailing” to show the date you mailed your payment.

9. Request account deletion

After fulfilling your payment obligations, request that the collection account be deleted from your credit report. This can positively impact your credit score by removing negative information associated with the debt. Follow up with the creditor or collector to ensure the deletion request is processed.

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, keep your records in a safe place in case issues arise later.

How to pay off a debt in collections online

When you want to make online payments to resolve a collection account, the first step is to contact the credit collection service or agency handling your debt. They will provide you with specific instructions on how to proceed with an online payment.

Most legitimate collection agencies have websites or secure portals where you can log in to make payments electronically. You may need to create an online account on their website or use a designated payment link.

Always verify the legitimacy of the website or portal before entering sensitive financial information. After making your payment, receive a confirmation and keep it for your records.

The bottom line

Paying off collections requires persistence and dedication. It takes some effort to settle your debt and improve your credit score, but it leads to improved financial well-being over time.

Regardless of the repayment strategy you choose, make sure you verify your debt and obtain the necessary documentation to safeguard yourself. These steps are crucial to managing and resolving collection issues effectively.

At this stage, you might be tempted to ask for help. Before you do, it’s useful to know your debt relief options. If you do reach out for help, use a reputable credit repair company.

Frequently asked questions

• What's the safest way to pay a debt collector?

  The safest way to pay a debt collector is with a method that provides proof of payment, such as mailing a check with a return receipt or using a secure online payment portal provided by the collector. Documentation provides evidence of payment in case of any disputes.

• Is it good to pay off collections?

  Yes, it is generally beneficial to pay off collections. Settling collection accounts can improve your credit score over time and prevent further negative consequences like legal actions or added fees. Consult with a financial or legal professional for advice on individual circumstances.

• Do collections go away once paid?

  Paying off collections does not automatically remove them from your credit report. Typically, they will remain on your report for up to seven years from the date of the original delinquency. However, lenders view paid collections more favorably than unpaid ones.

• What happens if you never pay collections?

  If you ignore or refuse to pay collections, the debt collector may escalate efforts to recover the debt. This could include legal actions such as lawsuits or wage garnishment. Unpaid collections can also severely impact your credit score and make it harder to secure loans or credit in the future.