How to Pay Off Debts in Collection

The most important element of the debt-collection process is knowing your rights. Andrey_Popov/Shutterstock

Dealing with collection phone calls and letters can seem overwhelming. In the first quarter of 2024, there was 3.2 percent of aggregate debt in some form of delinquency. According to the Federal Reserve Bank of New York, the aggregate debt for the third quarter of 2024 was $17.94 trillion.

That means there are probably many other Americans facing collections. But how do you stop the phone calls and pay your debt once they go to collections? Is there anything you can do?

Confirm You Owe the Debt

Mistakes are made, so ensure you owe the debt in question. For example, the lender may have reported the wrong amount to the collection companies or credit bureaus.

Inquire about the name of the original creditor and when the debt was incurred. Ask for the total debt balance as well as any interest charges. Don’t take the collection representative’s word. Ask for a written validation of the debt. Ask to be contacted only in writing.

You’ll also want the name of the collection agency and the representative you’re speaking to.

At this point, you’ll have 30 days to confirm the debt is yours. If the debt doesn’t belong to you, take steps to dispute the debt.

Know Your Rights

Laws are in place that limit what kinds of debt can be sent into collections and the circumstances under which it can be collected.

Depending on where you live and what type of debt incurred, there are statutes of limitations. Generally, the limitation is between three and six years, although it may be longer in some states.

If your debt is outside the limitations, the debt collector cannot sue you for payments, but they can still contact you and try to collect. If the statute of limitations has passed, the only way the debt collector can collect it is if you choose to send them money. Other than that, it’s not mandatory.

You are also protected from debt collectors using deceptive practices to collect or harass through the Fair Debt Collection Practices Act (FDCPA). Besides these practices, it also limits contact. You can only be called between 8 a.m. and 9 p.m., your local time. They are also limited to how many times they can contact you in a seven-day period—no more than seven times.

False claims are also banned, and they must verify your debt.

If you want to stop the collection calls, you have the right to send a letter to the collection agency asking them to cease contacting you. You’ll still be liable for the debt, and they can sue you for it, but they will not be able to contact you in any way. You must ask this in writing.

Determine What and How You Can Afford to Pay

You’ll probably be pressured to send money immediately. Debt collectors may present a “limited time” settlement offer with special payment arrangements. But do some preparation before agreeing to this.

Once you agree to payment or a settlement, you could accidentally restart the statute of limitations if you fail to send the money. For example, you may only have one year left on the statute of limitations, but if you make a payment, you’re back to seven years again, depending on where you live.

Look at your budget to see what you can afford. Then, if possible, call the debt collector and offer a lump sum of a specified amount to settle the debt. This could be 30–50 percent or whatever you can afford.

If you can’t afford to pay a lump sum, offer a monthly payment amount. But once more, after your first payment, you risk restarting the statute of limitations. You also restart the time limit for how long the negative information stays on your credit report.

Contact Debt-Collection Agency

Many people are tempted to have a third party negotiate with the collection agency—but this can be expensive. If the third party isn’t reputable, this could damage you further. Instead, consider negotiating on your own behalf.

You can find your debt collector’s information on your credit reports. This is an important resource, since your debt could have been bought and sold to different collectors.

Once you have this information, call the agent from the collection agency. Ensure you inquire about the agent’s contact information so you may speak to the same person again.

As part of your settlement, ask that the debt be removed from your credit report. The agency is under no legal obligation to do this, but some will. If not, ask if they can at least update the credit bureaus that were “paid as agreed upon” once they have received your payment or payments.

Once you have reached an agreement, ask for a written copy of the agreement. It must include payment information. If they have agreed to update your credit report, that should be in the agreement as well.

Once you have agreed and started making your payments, document them so you can prove you’ve fulfilled the deal. This not only proves you complied but can also help you dispute a credit-reporting error if your payment isn’t updated.

Rights When in Collection

The most important element of the debt-collection process is knowing your rights. The collection agency can’t and shouldn’t bully you. You have the right to stop all contact through a written letter. But understand that if you come to a settlement, once you’ve made a payment, you reset the statute of limitations.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.