How to Pay Off a Debt in Collections
If you are struggling with credit card debt that is significant enough that a collections agency is involved, life can be pretty darn stressful. From phone calls and texts to notifications in your mailbox and email, it’s tough to feel like you’ll ever escape this never-ending situation.
Don’t worry: all is not lost. We’ve helped many customers in situations just like yours over the years, and we’ve got some tips to help you resolve that debt and get back on track financially.
The information on this blog is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that You consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions
What is Debt Collection?
"Debt collection" is a term that we’ve all heard before, but what does it actually mean? Debt collection is the process where a third-party collection agency tries to recover the money you owe to a creditor when you fall behind on your payments. At a certain point after failing to get paid directly, the creditor decides to outsource the task of collecting what you owe.
Debt collection is common in the financial industry, and it plays an important role in protecting the stability of our economy. When debts aren’t paid fail to repay their debts, it can have negative effects on both lenders and borrowers. Debt collection agencies take on the responsibility of ensuring that the money owed is eventually recovered.
How Does Debt Collection Work?
Once your debt is in collections, the collection agency will contact you to recover the money. They may call you, send letters, or even report the debt to credit bureaus (negatively impacting your credit score in the process). Their ultimate mission is to collect the entire amount you owe plus any additional fees or interest.
Debt collection agencies deploy trained professionals who specialize in negotiation with those in debt. These experts are skilled at handling challenging situations and finding mutually beneficial solutions. In some cases, they may offer you the opportunity to set up a payment plan or negotiate a reduced settlement amount.
Furthermore, rest assured that debt collectors often work closely with the original creditors to ensure accurate and up-to-date information about the debts they are pursuing. They share detailed records of each debt and all the communication they’ve had with the customer or business in question. This documentation is maintained so that it can be referenced in case of any disputes or legal proceedings.
How Debt Collection Affect Your Credit Score
This one can hurt a bit. Having debt in collections can often have a major impact on your credit score… and not in a good way. When a collection agency reports your debt to the credit bureaus, that blemish stays on your credit report for up to seven years… even after you've paid it off. This negative mark can make it difficult for you to get approved for credit cards, loans, mortgages, or even apartment rentals.
To make matters worse, a decrease of your credit score can also have a continual ripple effect on your life. A low score makes it harder to qualify for the best interest rates on future loans. Lenders may view you as a higher risk borrower, resulting in higher interest rates, costing you a lot more money over time.
But wait, there’s more. These days, many employers conduct credit checks as part of their hiring process, and a less-than-impressive credit report tarnished by debt collections can raise concerns for potential employers who may question your ability to handle job-related responsibilities (especially if they involve making financial decisions!)
On a personal level, dealing with debt collections can put a huge damper on your personal life as well. The stress of being pursued by debt collectors can take a major toll on your mental and emotional well-being, making it an uphill battle to focus on relationships, career growth, or personal development.
Don’t forget that dealing with debt collections can also have legal consequences for you, especially if creditors decide to take legal action to recover the debt. This can result in wage garnishment, asset seizure, or even bankruptcy, making it even more challenging to rebuild your credit and regain financial stability.
See: How To Get A Debt Lawsuit Dismissed
How to Pay Off a Debt in Collections
Step 1: Confirm Your Debt
Before you begin your debt resolution journey, it can’t hurt to make sure that the debt is indeed yours. Like all of us, collection agencies sometimes make mistakes or attempt to collect on debts that are no longer valid. Request a Debt Validation Letter (to learn more about this type of documentation, check out our blog on the subject), which will provide you with details about the original creditor, the total amount owed, and any additional fees or interest. See: What is a Debt Validation Letter
Step 2: Understand Your Rights
It's very important to understand your rights when dealing with debt collections. In particular, the Fair Debt Collection Practices Act (FDCPA) protects consumers from abusive or harassing practices by collection agencies. Familiarize yourself with your right to dispute the debt, the right to request validation of the debt, and the right to be treated respectfully by the collections agency.
Step 3: Negotiate with the Collection Agency
If the debt is valid and you're ready to begin paying it off, you should think about negotiating with the collection agency. They often buy debts for less than the actual monies owed, so they may be willing to settle for a reduced amount. Be prepared for the negotiation process and keep in mind that it's in their interest to reach a resolution as well.
Step 4: Set Up a Payment Plan
If paying off your balance with a lump sum payment isn't possible for you, ask the collection agency if you can repay your debt under a payment plan that would allow you to make manageable monthly payments until the debt is paid off in full. Be sure to get any agreement in writing and consistently stick to the agreed-upon schedule to avoid getting yourself back in hot water.
Resolving your debt in collections can be a challenging journey. By understanding the debt collection process, taking the necessary steps we’ve outlined, and sticking to an agreed-upon payment plan, you can eventually pay off your balances – but wouldn’t it be easier to avoid this situation be resolving your debt sooner?
How Can I Avoid Debt Collections Altogether?
For over 30 years, JG Wentworth has been helping customers meet their financial goals. In fact, our Debt Resolution Program can help you resolve your debt in as little as 24-48 months after we negotiate a significant reduction of your overall debt totals on your behalf.*
If you are drowning in credit card (or other unsecured) debt, you don’t have to wait for the collections agencies to chase you down. Take the first step towards freedom by calling us today at 855-688-9669 and let’s work together towards your fresh financial start!
Sources Cited
Tayne, L. How to Get Debt out of Collections: 9 Steps to Handling Aggressive Creditors. Credit.com
Retrieved from https://www.credit.com/blog/6-steps-to-take-if-your-debt-goes-into-collections-173435/
Pyles, S. How to Deal with Debt Collectors in 3 Steps. Nerdwallet.com
Retrieved from https://www.nerdwallet.com/article/finance/how-to-deal-with-debt-collectors
* Program length varies depending on individual situation. Programs are between 24 and 60 months in length.
Clients who are able to stay with the program and get all their debt settled realize approximate savings of 51% before our 25% program fee.
Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
JG Wentworth does not pay or assume any debts or provide legal, financial, tax advice, or credit repair services. You should consult with independent professionals for such advice or services. Please consult with a bankruptcy attorney for information on bankruptcy.