6 Steps When Your Debt Has Been Sent to Collections

by Dana George | Updated July 25, 2021 - First published on May 4, 2021

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You still maintain a measure of control, even after debt has been sent to collections.

If you're having trouble paying bills, chances are, you're dealing with financial anxiety and feeling overwhelmed. If so, we're here to help. Let's take a look at what collections are, and six steps to take when dealing with debt collectors.

What are collections?

Debt collectors are typically third-party organizations paid to collect debt on behalf of creditors. The more they can collect, the more money they earn. When you are contacted by a debt collector, the following steps will help give you a greater sense of control. They may also help you get back on your feet financially so you're ready the next time you apply for a new credit card or want to take out a mortgage.

1. Make sure it's your debt

If your debt was sent to collections, your credit score could go down by 70 to 100 points. Fortunately, you can stop the bleeding by taking control. The first thing you should do is ask for written verification that the debt is yours. A creditor must prove that they have the correct name, Social Security number, and address on file. They must also provide evidence that you signed for the debt.

2. Get everything in writing

Nothing a debt collector says to you matters. You want (and need) everything in writing. If you received a letter from a debt collector, use the address on the letter to write back to them. If you pick up a phone call from a creditor, only speak with them long enough to get a mailing address. Let them know that all communication should be via mail.

3. Study everything

When you receive a letter from the debt collector, make sure that the debt in question belongs to you. Then, see if the letter indicates whether the debt has been reported to the three major credit bureaus. This is also a good time to order a free copy of your credit reports to make sure the negative information has not yet been added. You can do this by going to annualcreditreport.com.

4. Negotiate

If the late payment has not been reported to the credit bureaus, you have some room to negotiate. If you can afford to pay the debt in full, offer to do so for a written promise from the debt collector saying they will not report the debt to the credit bureaus.

If the debt has already been reported to the credit bureaus, you'll need to take a different tack. Let's say the last time you made a payment on the debt was two years ago (and it's been nearly that long since it was reported to the credit bureaus). Negative comments remain on your credit report for seven years. That means you have another five years or so with this black mark on your report.

However, making a partial payment now could do more damage. That's because making a payment restarts the clock, meaning you just added a couple more years of negative remarks to your report.

Instead, negotiate hard. Decide how much of the debt you can afford to pay in one lump sum or a series of monthly payments. For example, if the original debt was for $5,000, offer to make a lump sum payment of $3,000 or six equal monthly payments of $500 to settle the debt. In return, the debt collector must promise (in writing) to remove the collection from your credit report.

It won't be easy to get a debt collector to agree to your proposal, but you have leverage on your side. If you don't pay something, the only chance a debt collector has of getting money is to take you to court.

5. Ask for help

If the idea of dealing with a debt collector gives you the heebie-jeebies, get help managing your debt. A non-profit credit counseling service can provide guidance on how to resolve the debt, negotiate with creditors on your behalf, and help you develop a plan to get your finances back on track.

6. Stay cool

According to a study by the Urban Institute, 29% of Americans currently have debt in collections. As rude or ridiculous as a debt collector may be, you're just another name on their long list of contacts. While federal laws have limited the things debt collectors can say and threaten, successful collectors have figured out ways to make people pay up. But no matter what the letter says or how the person on the phone behaves, you are in charge of how you respond.

There's no reason to get worked up following contact from a debt collector. If it helps, remember these four things:

  1. You are not alone. Millions of other Americans face the same issue.
  2. If you feel overwhelmed, a nonprofit credit counseling service can help.
  3. This is not forever. No matter how big a hit your credit report has taken, it is possible to rebuild your score.
  4. Everything that happens -- good and bad -- makes you that much wiser.

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