When my debt went to collections

After graduating college, I got into a habit of checking my credit report a few times a year. It was a pretty mundane routine – I’d log onto the website for one of the three credit bureaus (Equifax, TransUnion and Experian) and casually leaf through my report. For years, it was a completely uneventful ritual.

Until one day a few years ago.

As I was scrolling through my report, I noticed a red mark. I was so used to the routine I had to double check to make sure it was real, but there it was: an unpaid medical bill from Indiana University Health had been sent to collections.

I was reeling, and for good reason – I had paid every bill they ever sent! But that didn’t erase the reality of my situation, so I called their billing office and got to the bottom of the story. Apparently they had sent a bill to my old address, but I had since moved out of the state. I had set up mail forwarding, but obviously the bill was lost in the shuffle.

Thankfully I was able to get my situation straightened out with no negative repercussions, but that’s not always the case when a debt is sent to collections. For many people, it’s the start of a long and frustrating battle to pay off the debt while dodging pesky and aggressive bill collectors.

If you’ve had a debt sent to collections, read ahead for everything you need to know.

What does collections mean?

A debt is sent to collections when the borrower has missed several payments, and the original lender no longer thinks they’ll get their money back. They sell the debt to a collection agency, which then starts hounding the borrower for the money.

A collection shows up on your credit report as a huge red flag, and if you have a debt that’s still in collections, your likelihood of getting a new loan is slim. Most people want or need to pay off a collection because they need access to credit.

Unsecured loans such as medical bills, personal loans and student loans are the most common debts to end up in collections, because there is no collateral that the bank can take from you to resell and recoup their loss, like a house or car.

Having a debt sent to collections is a serious offense and should be resolved as quickly as possible.

Steps to take

  1. First, verify that the loan is indeed yours. Some scammers pretend to be debt collectors and they scare people into thinking that their loan is overdue.
  2. The Consumer Financial Protection Bureau suggests asking for the debt collector’s information, including name, address, phone number and license number. You should also request to get a letter in writing sent to your current address.
  3. Do not give out any personal or sensitive information, such as your social security number or bank account number, until you receive the letter and verify the debt is yours.
  4. If you don’t recognize the debt, then send out this verification letter provided by the CFPB, which requests more information so you can determine if the debt is yours.
  5. Once you have verified the debt, it’s time to determine what you want to do. Always try to negotiate with the debt collector to settle the debt for less than the amount that’s owed. Remember, debt collectors buy bad debt for pennies on the dollar, so they’re usually willing to negotiate.
  6. Choose an amount that you can afford to repay in one fell swoop or set up a payment plan with the debt collector.
  7. Another important strategy is to have the debt collector agree to remove the debt from your credit report if you repay it in full. Make sure to have this in writing so it’s enforceable. The sooner you get your collection removed from your credit report, the sooner your score will recover.
  8. If you ignore the debt, debt collectors can sue to get an official judgment, which will force you to repay the debt. Judgments can lead to having your wages garnished or having your property seized. If you are being sued and don’t have a lawyer or can’t afford one, check out these low-cost and free legal resources that might be able to help.

What you need to know to protect yourself

The Fair Debt Collection Practices Act has made certain tactics, such as calling your family members about your debt or calling you after 9 p.m., illegal. That doesn’t stop many debt collectors.

Here’s a summary of what else they’re not allowed to do:

  • Continue contacting you at work if you’ve told them not to;
  • Contact you directly if you have an attorney;
  • Threaten you with jail.

You can also request that a debt collector stop contacting you period. While that may temporarily alleviate your worries, it doesn’t get the debt collectors off your back. At that point, they may sue you to win an easy judgment and recoup their money.

After you pay debt off

After you pay off the collection, it will not automatically fall off your credit report unless you specifically asked for a “pay to delete” from the collection agency. It will be reported as a collection paid in full, which can still negatively impact your credit score.

How to prevent dealing with collections

When a debt goes to collections, it usually means there have been months of nonpayment. Basically, the consumer is aware that there are issues. Only in rare cases debts that are still current get sold to collections.

Have a list of all your loans and due dates and make sure that they’re paid every month.

If you do have trouble making a payment, contact the lender and ask what your options are. Some can extend the due date or offer a grace period.

It’s always better to do this before you’re late because it shows a sign of good faith on your part. Lenders are often willing to work with you because they know if the account goes to collections, they’ll only get a fraction back of how much you owed them.

Where to go for help

  • National Foundation for Credit CounsellingThe largest nonprofit for debt and financial counselling has locations all over the United States and Puerto Rico. Per their website, “The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.”
  • Credit Unions. These nonprofit organizations typically offer debt relief in the form of financial counselling and credit management tools. Just about any area of the country should have a credit union nearby, so find one near you and ask about their debt relief services.
  • Religious Organizations. Many religious organizations, from Christian churches to Jewish community centers will offer financial and credit counselling. If you belong to a religious community, ask around to see if your church, mosque or temple can help. Even if you’re not religious, these organizations will often be willing to help at little or no cost.
  • Friends and Family. This is always a tricky piece of advice, as every relationship handles financial strain differently. But if you feel comfortable asking your friends or family for assistance, see if they’d be willing to help you get back on your feet. Often, loved ones will be willing to offer a low interest loan, with the interest deferred until after you’ve paid off the debt collectors – as long as they feel like they can trust you to pay them back.
  • Debt Collection Attorneys. For creditors, the most effective form of debt collection is filing a lawsuit. If this happens to you, you’ll need to respond or risk losing a default judgement. This is where a debt collection attorney can help, by walking you through your options and representing you in court. They can also help if you feel that your rights have been violated, either by communicating directly with the debt collector or by filing a suit or countersuit.

The bottom line

It can be pretty scary when you start getting pestered by debt collectors – especially when their calls get more frequent and their tone more threatening. It’s not a great situation, but know this – you can climb out of it.

After you’ve verified whether or not the debt is truly yours, start the process of trying to repay it as soon as possible. Often, that will involve negotiating with the collector to get the total sum reduced. From there, your path forward should be pretty clear: cut your expenses, try to maximize your income and pay off the debt as quickly as you can. If you know your rights and work hard to pay down the balance, you’ll be debt-free with little fuss.

If you’re having trouble managing the situation on your own, don’t be scared to reach out for help. There are nonprofits, religious organizations and even people in your own life who will be happy to help you get back on your feet.