How to Deal With a Debt in Collections

Stop and think before you act when dealing with debt collections. You have rights.
Aug 5, 2021
What to Do If Your Unpaid Debt Is in Collections

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Have you found yourself with a debt in collections? If so, you're likely to face calls from debt collectors seeking payment. But before you pay a dollar toward the debt, make sure you understand how this happens, the best way to resolve your account, and what this means for your credit.

Regardless of why your debt went into collections, it’s important to deal with the collection notice. If you don’t, you could wind up in court.

Here’s what to do if an unpaid debt goes into collections:

How debts end up in collections

The road to debt collections is long. It starts when a debt goes unpaid for a period of time, usually starting 30 days after the due date.  The overdue payment may be reported as delinquent. You’ll get notices and possibly calls seeking payment. At some point, usually after 180 days, the creditor — such as a credit card company, bank or medical provider — gives up on trying to collect.

The original creditor may then sell the debt to a collections agency to recoup losses. It may get only pennies on the dollar, but that’s seen as better than having an old debt on the books and getting nothing.

If your debt is sold, you’ll start getting debt collection notices from a different company. It’s the same debt, and you still owe payment — it’s just that a third party has bought the right to collect.

Dealing with a debt in collections

Don't make any rash decisions when dealing with a debt collector; you might end up making your situation worse. Follow these steps:

1. Get the facts: You have the right to receive debt validation and debt verification letters; use it. You should receive a validation letter from the debt collector within five days of first contact. Check it over for details about the age, amount and history of the debt, and information on who's trying to collect. Consult your own records — including your credit reports — to corroborate details of the account. If you need further information, request a debt verification letter.

2. Know your rights: Learn about your consumer rights under the Fair Debt Collection Practices Act so you know what collectors aren’t allowed to do — such as calling you at unreasonable times, threatening you with arrest or using obscenities. Some states have even more protections for consumers; find your state’s laws online or contact your attorney general’s office to learn more.

3. Find your route: The two most common ways to handle a debt in collections are choosing a payoff method or disputing the debt as being in error.

  • There are a few options for paying a collections account. No matter which you choose, do not give the collector permission to access your bank account, either by providing your debit card number or setting up automated debits. If you make an agreement for a payment plan or to settle the debt for less than owed, get the agreement in writing so you can hold the collector accountable.

  • You can dispute the debt if it's not yours or if you already paid it off. The agency must stop collection efforts and investigate. During this time, it can’t put the issue on your credit reports. If it finds the debt valid, the collector will mail you documents verifying the bill. If not, it will stop attempting to collect the debt.

For more details on the best route to take, understand the best strategies for dealing with debt collectors.

If you're dealing with the IRS over a tax lien, take steps to avoid having it turn into a tax levy.

How a debt in collection affects your credit

In general, collections will remain on your credit reports for seven years from the point the account originally became delinquent. The exception is medical bills that go into collections but are later paid by an insurer; those drop off your credit reports upon being paid.

Some of the newer scoring models — such as VantageScore 3.0 and FICO 9 — ignore collections that have been paid. But FICO 8 credit scores, the ones most widely used in lending decisions, will consider even paid-off collections if the original debt was over $100.

Like other negative marks, collections showing on your credit reports will hurt your credit, but the effect will lessen over time. There are a few ways to get a collections account off your credit report, however.

Collections and court judgments

Unpaid collections accounts may eventually land you in court — or at least with a court summons.

Lawsuits for collections accounts are a common and efficient way for collection agencies to get payment. Never ignore a court summons about debt. These lawsuits can result in wage garnishment, a bank levy or a lien on your property.

Each state has a statute of limitations for debt, after which you can no longer be legally sued for payment. Note, however, that the debt itself does not expire, and collectors can still contact you about it — they just cannot sue.

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