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Paying Collections

When you miss a bill, you might get a late fee and a stressful phone call from your creditor. When you miss a bill several months in a row, the consequences are more severe.

Your account might get sent to an internal collection department or to a collection agency, and it will likely show up on your credit report. The results can include anything from stressful, harassing phone calls to a drop in your credit score and difficulty getting a job or a mortgage.

Instead of hiding from debt in collection, these are some steps you can take to recover, and potentially reduce the damage to your credit and finances.

1. Verify the Debt is Yours

When a collection agency calls, you might be tempted to hang up, but the call is your opportunity to get valuable information.

By asking questions, without giving any information out, you can learn where the debt came from, and you might even discover that it doesn’t belong to you.

Be sure to ask for the following:

  • The name of the original creditor and when the debt was incurred.
  • The debt balance, including interest charges and fees.
  • The name and contact information of the debt collection agency and the rep you’re speaking to.
  • Request written validation of the debt and ask to be contacted in writing only.

After the call, you have 30 days to check and see if the debt belongs to you. You can do that by pulling your free credit reports or by looking at financial records such as bank statements or old bills.

If the account doesn’t belong to you, you can take steps to dispute the debt and put an end to the calls.

2. Check the Statute of Limitations

Once you verify the debt is yours, check the statute of limitations on debt collection for your state.

The statute of limitations is the deadline for when a company can sue you to recover a debt. This legal timeframe differs from state to state, but in most states it’s 3-6 years from the first month you stop paying the debt.

For example, if the statute of limitations in your state is four years and you haven’t made a payment on your credit card since January of 2020, a debt collector can’t sue you for the debt after January 2024. Note that creditors may also be blocked from suing you if you already have a wage garnishment or if your sole income is government benefits.

If the statute of limitations has passed, the only way a collector can get you to pay is if you volunteer to send the money for personal reasons.

3. Calculate the Amount You Can Afford to Pay

Debt collectors often pressure you to send money by presenting “limited-time” settlement offers or special payment arrangements. But it’s risky to agree without doing some preparation. Even if it’s just a verbal agreement, you can accidentally restart the statute of limitations if you fail to send the money.

Instead of letting the debt collector call the shots, look at your budget to see what you can afford. Then, if possible, call the collector once you have enough money for a lump-sum payment of 30% to 50% of the full balance.

Here are a few reasons why sending a one-time, lump sum payment is ideal compared to offering monthly payments:

Pros and Cons: Lump Sum Payments v. Monthly Payments
Lump Sum Settlement
  • The fastest solution.
  • Can help you negotiate a better deal.
  • Avoid extending the statute of limitations.
  • You need to have the money up-front.
Monthly (installment) Payments
  • Can make paying more affordable.
  • Restarts the statute of limitations if you miss a payment.

Note that if you’re dealing with in-house medical collection, you can often work directly with the provider to set up low, interest-free payments. By doing so, you might prevent having the account sold to a debt collector and damaging your credit.

4. Contact the Collection Agency

Once you’ve calculated how much you can afford and you’re ready to make an offer, you should contact the collection agency directly. It can be tempting to hire a third-party debt settlement company, but for-profit debt settlement is a high-risk, high-cost and time-consuming solution.

When you contact the collector, Equifax, recommends starting your negotiation by offering   and working your way up from there.

Once you’ve agreed on a payment amount, ask for a written statement showing that your offer will be accepted as “payment in full.” You can also ask to have the account removed from your credit reports; however, debt collectors are not legally required to honor such a request.

Finally, don’t send any money until you’ve received the accurate details of your agreement in writing.

5. Make Your Payment

There’s a right way and a wrong way to send payments to a debt collector. The best approach is to protect your financial information and thoroughly document the process. Here are a few tips:

  • Payment method. The best method of payment will prevent a debt collector from having access to your financial accounts. For that reason, a money order is your best option. Be sure to keep a carbon copy and receipt.
  • USPS documentation. Ask USPS for tracking information and a return receipt so you have proof the payment was received.

6. Maintain Records

Once your payment is made, request a letter of completion from the collection agency.

Be sure to store all of your documentation in a safe place. That way, if the debt collectors don’t hold up their end of the bargain, you can use the documents to file a dispute or take legal action.

What Is Debt Collection?

Debt collection is an industry that collects unpaid debt. If you fall several months behind on a bill, your debt might be sold to a debt collection agency, which means the original company no longer owns your debt.

Debt collectors buy debt wholesale, meaning they usually buy overdue accounts for .20 cents on the dollar. Then they make efforts to get payments from the customer. They might do this in a few ways:

  • Making phone calls about the debt
  • Sending letters
  • Filing a lawsuit

If a debt collector wins a lawsuit against you, they may be allowed to garnish your wages, however, they can’t file a lawsuit after the statute of limitations has passed.

When Does Debt Get Sent to Collection?

When you fall behind 30 days on a bill, your account might initially be turned over to an in-house collection department. In other words, the debt is still owned by the same company, and you might get calls from them attempting to work out a payment.

If you fall three-to-six months behind, the debt will likely be sold to a third-party debt collection agency. When this happens, the results can be more stressful and overwhelming. Be sure to follow the steps above if you want to end debt collector harassment, stop collection calls and try to improve your credit.

Which Types of Debt Go To Collection?

Any outstanding bill can be sent to collection, even if it’s just a $65 parking ticket. Here are some common types of consumer debt that get sold to debt collectors:

What Are My Rights Against Debt Collectors?

If you’re being harassed by a debt collector, you have a right to fight back. The Fair Debt Collection Practices Act (FDCPA) and other consumer protection laws are meant to protect you from the following creditor behavior:

  • Calling you between 9 PM and 8 AM
  • Contacting you at work (if you’ve told them not to)
  • Telling others about your debt
  • Harassing or threatening you or lying to you about your debt.
  • Calling you more than

If your debt collector violates the law, you can report them to your   or even take legal action to recover damages.

How Can I Find Which Collection Agency I Owe?

It can be hard to find out where a collection account came from. Your debt may have changed hands multiple times, so it’s not uncommon to get a call from a company you’ve never heard of.

The first step to find out who you owe it to look at your credit reports. Your credit reports show a list of your collection accounts, and each one states who the debt was purchased from and when.

You can also ask debt collectors where the debt came from, and then compare their information to your own records, including bills and financial account statements.

How Does Debt Collection Affect Your Credit Score?

When a debt collection account appears on your credit report, your scores are likely to drop … a lot! The details of the account, along with your other credit history, will determine how much damage you experience. Here are some factors that can make the damage worse:

  • An account recently went to collection
  • Multiple accounts are in collection

Debt collection accounts stay on your credit reports for seven years, but they impact your credit scores less as time goes by.

Should I Pay Off Collection?

Contrary to popular belief, paying off a collection account might not improve your credit score, and the account will not automatically be removed from your credit reports.

If you’ve verified that a debt belongs to you, there are a few reasons you may decide to pay or settle the debt, other than improving your scores:

  • A lender has informed you that you can’t get a loan unless you pay off the debt.
  • The statute of limitations has not passed, and you want to stop the collection agency from taking legal action.

Work with a Nonprofit Credit Counselor

Before you offer money to a debt collector, consider reviewing your options with a nonprofit credit counselor. Credit counseling gives you a chance to hear from a professional and get pointers on how to improve all areas of your finances and credit.

A certified credit counselor can review your situations and answer questions about a wide variety of issues related to debt, including how to make settlements, whether or not to file for bankruptcy or just strategies for gaining some points on your credit scores.

About The Author

Sarah Brady

Sarah Brady is a Personal Finance Writer and educator who's been helping people improve their financial wellness since 2013. Sarah writes for Experian, Investopedia and more, and she's been syndicated by Yahoo! News and MSN. She is a workshop facilitator and former consultant for the City of San Francisco's Affordable Home Buyer Programs, as well as a former Certified Housing & Credit Counselor (HUD, NFCC). Sarah can be contacted via


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