Getting a letter or call from a collection agency can feel like things have gone from bad to worse. But a debt in collections is still a debt you can deal with, and you have more rights and options than you might think. Here is what happens when a debt goes to collections and what to do next, step by step.
Why Debts Go to Collections
When you fall several months behind, the original creditor may stop trying to collect itself. It may hire a collection agency or sell the account to a debt buyer. Credit cards are often charged off and sent to collections after around six months of missed payments. Learn more about what a charged-off account means.
Step 1: Don’t Panic, and Don’t Ignore It
Ignoring a collector won’t make the debt go away, and it can lead to a lawsuit you don’t see coming. At the same time, you don’t have to agree to anything on the first call. It’s fine to say you’ll respond in writing.
Step 2: Verify the Debt
A collector must send you a validation notice showing what you owe, who the creditor is and how to dispute it. If anything looks wrong, or you don’t recognize the debt, dispute it in writing within the validation period, generally about 30 days. The collector must pause collection until it verifies the debt.
Step 3: Check Your Credit Report and the Dates
Pull your free credit reports and compare the account details with the collector’s notice. Note when you last made a payment, because that helps you figure out whether the debt is near or past the statute of limitations. In some states, a payment on an old debt can restart the clock.
Step 4: Know Your Rights
Third-party collectors must follow the Fair Debt Collection Practices Act. They can’t call before 8 a.m. or after 9 p.m., threaten arrest, lie about what you owe or discuss your debt with your family or employer. Read debt collector harassment: your rights under the FDCPA.
Step 5: Decide How to Resolve It
- Pay in full if you can and the debt is valid.
- Negotiate a settlement for less than the full balance. Collectors and debt buyers often accept a reduced lump sum. See typical settlement ranges.
- Set up a payment plan you can actually keep.
- Consider a broader solution if you have several debts in collections, such as debt settlement or credit counseling. Compare them in Debt Settlement vs. Credit Counseling.
Step 6: Get Everything in Writing
Before paying, get a written agreement that states the amount, the payment schedule and that the payment resolves the debt. Pay in a way you can track, and avoid giving a collector ongoing access to your bank account. Keep copies of everything.
If You’re Sued
If you receive a summons, respond by the deadline. If you don’t, the collector can get a default judgment, which may lead to wage garnishment or a bank levy. Here is what to do if a debt collector sues you.
Frequently Asked Questions
How long does a collection stay on my credit report?
Generally up to seven years from the date of the original delinquency, even if you pay or settle it. Paying or settling updates the status, which looks better to lenders.
Can I negotiate with a collection agency?
Yes. Collection agencies and debt buyers often accept less than the full balance, especially for a lump-sum payment.
Is it a scam?
Be cautious with anyone demanding immediate payment by gift card, wire or crypto, or refusing to send written validation. Here are common debt scams and how to avoid them.
Related reading: What Happens If I Just Ignore My Debt? · Which Debts Can Be Settled? · Is Settled Debt Taxable?
Get Help With Debts in Collections
If you have several accounts in collections, Alliance Settlement can review them with you and explain whether settlement makes sense. Request a free consultation.
This article is general information, not legal advice.
