 |
| My Account Has Been Sent to Debt Collections. What Now? |
Article Table of Contents
Having an account in collections may be discouraging, not to mention bad for your financial health. Most companies allow your account to be delinquent for a few months before they turn it over to a debt collections company since the debt collections company is their last resort to recover money from you.1 But if you find out you have an account in collections, you need to act quickly to fix it.
Ask for a Statement
If you are working on repaying off old debt, or if you did not realize that you were missing payments on a bill, like a medical bill, you will need to deal directly with the debt collections company to clear up your old debt, not the original creditor.
You will have to ask for a statement from the debt collections company that outlines the original amount of the debt, as well as any fees that have been added to your account. You will be surprised at the fees that can accumulate with unpaid bills.
If the collections company contacts you and tries to collect a debt on an account you do not remember having, please be sure to request account information to ensure it’s really yours. By law, they have to provide you with more information, plus proof that the debt is yours.
Negotiate Payment Terms
If you have adequate money to pay off the debt in full, you should consider doing so. This debt will reflect on your credit report as paid in full, which will help raise your credit score by showing that you are cleaning up old debt and changing past habits.
If you are not having the funds to pay off the debt in full, go for negotiating a debt settlement. Here's how it works: You offer the amount that you have as a single lump payment to serve as a settlement in full. This means that the amount you paid will clear the debt.
But before you make the payment, ensure to receive a formal letter that states that the amount paid will be considered a settlement in full. You may also negotiate a payment plan with consistent payments each month until the debt is paid off in full.
Dealing with Identity Theft
Keep in mind that collections agencies are just not picture perfect. Sometimes, they look for people who have the same name as what is listed on the debt, and begin calling all of them to find the person that owes the debt. They are not always careful about making sure they have the right person. This is why you need proof that the debt belongs to you before you begin making any payments on that debt.
The debt can even be attributed to your name and Social Security number but may not be yours. In this case, it's usually because of identity theft. If you suspect this has happened you will need to file a police report and mail a copy of the report to the collections agency. This will stop the debt collection agency from harassing you until the issue is resolved.
And never give the debt collections agency your full Social Security number. On the contrary , let them give you the last four digits of the number attached to the account and see if it matches
Dealing with the Collections Agency
There are laws that govern how collections agencies can collect money owed. These laws keep these agencies from harassement you or engaging in other similar behaviors.
Once you have talked to them and explained the circumstances surrounding the debt, you are not obligated to answer their daily phone calls. They are also not permitted to tell other people about your debt.
If you have established the debt is not yours, they should stop contacting you. If the debt is yours and they won’t work out an affordable payment plan, then you can always ask to speak to a supervisor.
Keep in mind that if you do owe the debt and do not make payments they may take you to court, which may result in the garnishment of your wages until the debt is paid off. Its best to set up a monthly payment plan you can afford if you are not in a position to offer a lump sum payment to the agency.
How to Prevent Future Accounts from Going to Collections
Once you have handled an account in collections, it is critical that you take steps to prevent this from happening again in the future. Start with a budget and work to pay down all your debts as quickly as possible.
You should using credit cards, and create a monthly spending budget, and stay current on your utilities and rent to avoid getting into a debt in the future. Taking control of your finances is the best way to ensure that you stay out of debt and never have to worry about debt collectors again in the future.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
