How to Pay Off a Debt in Collections (And Should You?)
If you have a debt in collections, you may be tired of incessant phone calls from collectors. And on top of that, your credit may be taking a hit.
Learning how to pay off a debt in collections – and if it’s the best move – can help stop the phone calls and get your finances back on track.
How does debt end up in collections?
Most forms of debt can end up in collections, from credit card payments to medical bills and even overdue library fines. Generally, if you’ve been delinquent on a debt for a substantial amount of time, the creditor will sell your debt to a third-party collections agency. Delinquency is typically reported 30 days after the missed payment. And creditors often send the debt to collections after 180 days of trying to collect. The third-party collections agency may only pay the creditor pennies on the dollar for your debt. However, this is considered favorable to having an unpaid debt on their books. You still owe the payment, but the agency will collect it rather than the original creditor.
Should you pay off a debt in collections?
To determine whether you should pay off a debt in collections, you will need to know the statute of limitations on your debt. The statute of limitations is the amount of time you can be sued by a creditor for an unpaid debt. The statute of limitations varies by state as well as by types of debt. It generally begins 30 days after your first missed payment. Once the statute of limitations runs out, your debt then becomes “time-barred,” meaning you can no longer be sued for it. However, even though you can’t be sued, you are still obligated to pay.
To determine if your debt is past the statute of limitations, request information about the debt from the collector. Collectors have a legal obligation to give you the information about the debt they’re attempting to collect. Ask the collector whether the debt is time-barred and the date of the last payment. If the collector is refusing to answer these questions, request a debt validation letter. The collector must send this letter within five days of your first contact. It will include the amount owed and the date of the last payment.
Once you have this information, you may wish to seek legal counsel to determine if your debt is past the statute of limitations. If your debt is time-barred, then you must decide whether you want to pay it off. You can no longer be sued for it by collectors. However, collectors will try to coax you into making a payment before the statute expires, because any payment on the debt, even $1, will restart the clock on the statute. Collectors, unfortunately, can still contact you even if your debt is past the statute.
While you can’t be sued for time-barred debts, there are still benefits in paying it off. It will, of course, help your credit score. As a result, it will make it less difficult to qualify for credit and loans. An attorney can also help you understand the pros and cons of paying off a time-barred debt to determine the best option for you.
How do you pay a debt collector?
Whether or not your debt is past the statute of limitations, understanding how to pay a debt collector can help smooth the process. If you have decided to take action on your debt, you typically have three options to pay off your debt in collections.
Pay off your debt in full
Of course, paying off your debt in full is the best option. It will get the debt collector off your back. It will also look the cleanest on your credit report because the debt will be marked “paid in full.” This may be an option if you owe a relatively small amount. However, if you owe a substantial amount, paying in full may simply not be realistic for you.
Negotiate a settlement
If you can’t pay your debt in full, consider attempting to negotiate a settlement with the collector. Because collectors typically buy your debt from the original creditor for pennies on the dollar, they are incentivized to collect any payment at all on your debt. Therefore, you may be able to negotiate a lump-sum payment for a percentage of the total you owe. Typically, the longer your debt has been in collections, the lower a settlement you can negotiate.
You can call the collector to settle the debt yourself or you can work with a debt professional. A reputable debt professional, such as a debt attorney, will know the ins and outs of debt settlement. However, if you negotiate a lump-sum payment, you’ll need to be sure you can make good on it, or risk getting into more trouble.
Work out a payment plan
If you aren’t able to make a lump-sum payment in a settlement, consider paying off your debt in collections through a payment plan. Collectors may work with you to make several large payments over three or four months. Most payment plans won’t exceed six months. You will likely not get as much of a discount as you would with a lump-sum payment, but it may be a favorable option if you have a financial hardship. Typically, the collector will stop bothering you if you’re current in your payment plan. Be sure you’ve agreed to a payment plan you can stick to. Otherwise, you may end up in an even worse situation.
The bottom line
Regardless of which tactic you take, be sure to get your agreement with the collector in writing. If you do decide to pay off your debt, ensure that you can stick to the agreement. Understanding the statute of limitations on your debt, as well as your financial situation and ability to pay, can help you determine the best way to proceed.
Having an attorney on your side can help you through the process. Leslie H. Tayne, Esq. and the team at Tayne Law Group, P.C. are here for you.
Call us for a free consultation at 866-890-7337 or fill out our short contact form and we’ll get in touch!