If you fail to pay your debts on time, they can end up in collections. In this situation, a collection agency will contact you by mail or phone. It’s important to know what it means when a debt goes to collection, as well as the necessary steps to take to pay it off.
Read more about this topic and tips on how to pay off your debt in collections.
What Is Debt Collection?
When a creditor fails to pay the money they owe to an organization, that organization can turn it over to a debt collection company for assistance. Debt collectors take on the task of pursuing payment.
Debt collection companies buy debt, usually at a significantly discounted rate, from hospitals, credit agencies, and other organizations that require payment for goods or services. If a business no longer believes a creditor will pay their outstanding debt, it may not be worthwhile to continue to seek repayment. In this case, an organization sells debt at a loss to a collection agency.
Statute of Limitations
Debt collection companies pursue only past-due payments that have gone beyond a mutually agreed-upon period, like 30 or 90 days. Once a debt goes to collections, the collections company may hold you responsible for payment for up to four years in the state of Texas. However, each state has its own statute of limitations.
When the statute of limitations is up, debt collectors can still call you and send notices, but they can no longer pursue legal action against you.
It’s important to know that some debt collection agencies may try to contact you about debts you already paid, but this practice is illegal. If you agree to pay any amount toward a debt you don’t actually owe, you can get into a messy situation.
Be careful to monitor your debts and keep track of what you have paid to avoid being taken advantage of by a fraudulent debt collector.
What Is the Best Way to Pay Off Debt in Collections?
The first step to paying off collections debt is making a plan. Having debt in collections is a serious legal matter and you’ll need an equally serious strategy to tackle it effectively.
1. Confirm the Debt Amount
Before paying or agreeing to pay anything, do your research. Have you already paid this bill? Can you prove it? Is the amount you are being charged correct?
You can also submit a formal letter requesting:
- The name of the creditor
- Proof of outstanding balance
- Proof that the collection agency has the legal authority to pursue your debt
- Age of the account
2. Plan Your Payments
When you confirm that you do owe the debt in collection, the next step is to assess your debts and income. Look at your fixed expenses—including food, shelter, and utilities—and figure out how much you have left over each month that you could put toward your debt.
3. Contact the Agency
When you’re ready to pay or negotiate, who do you call to pay off collections? Instead of calling your original creditor, contact the debt collection agency directly.
Call, email, or send a letter to the agency to discuss payment. Keep all correspondence and proof of payment to protect yourself. If you can’t pay the full amount, collection agencies can typically offer payment plans or may accept a reduced amount as payment in full.
Is It Worth It to Pay Off Debt in Collections?
Short answer: Yes. Having debt in collections can affect your financial and mental health. Your debt may also accrue interest, which means you’ll pay more when paying it off.
Does Paying off Collections Improve Your Credit Score?
A lot of people wonder about this. Will paying off collections increase your credit score? Unfortunately, it won’t affect the score right away, although it will affect it less as time goes on. Some credit scoring models also ignore collections with no balance.
Need Cash Quick?
If you need help figuring out how to pay off your debt in collections, Power Finance Texas can provide an installment loan of up to $1,250. You can use the funds to pay off your debt and get your account out of collections.