What to Do When You Get Sent to Collections

/ BY / Managing Debt

Unpaid bills that get sent to collections can cause serious damage to your credit score. In some cases an account goes to collections for reasons outside of your control, such as a billing error or unsuccessful attempt to contact you. In other cases, however, it's a legitimate debt and should be handled properly.

If you find out you've been sent to collections, take a deep breath and don't panic. When it comes to collection agencies, there are plenty of laws to protect you and ways to minimize the damage caused. Here's what to do:

Step One: Stay calm.

Collection agencies are known for being aggressive and difficult to deal with. However, it’s important that you remain calm when speaking to them. Do not admit to or deny a debt right off the bat. You should also read up on your rights to find out if you are being treated in accordance with the law.

Step Two: Find out if the debt is valid.

The first thing you should do when contacted by a collection agency is request validation of the debt. By law, collection agencies must send you written notice of your debt within five days of first contacting you. If you have not received any such verification, request it in writing or over the phone. The information should include the amount of money you owe, the account number, the original creditor, and what to do if you don’t think you are responsible for the debt.

Step Three: Check the statute of limitations.

Each state has a statute of limitations when it comes to debt collection, meaning you are no longer liable for the debt after a certain period of time has passed. You can check here to see if the statute of limitations on your debt has passed. If the debt is older than the amount of time your state allows, it can no longer be reported or collected.

NOTE: It’s very important that you don’t pay any money on a debt until it has been verified in writing and you have checked to make sure it falls within the statute of limitations. Paying money towards a debt indicates that you accept responsibility for it. It also resets the statute of limitations.

Step Four: Dispute the debt.

If you don’t believe that the debt is valid or accurate, you can dispute it. Simply write telling them that you dispute the accuracy and validity of the debt and want verification. If they can’t provide it, by law the debt must be removed from your credit report and collection activities stop. Send registered letters to the collection agency and the three credit reporting agencies: Experian, Equifax, and TransUnion. Make sure you keep copies of the original letter.

Step Five: Negotiate the payoff amount

Once the debt has been validated, your best bet is to go ahead and pay it. When a bill has gone to collections, you can almost always negotiate the amount. Many financial experts recommend negotiating at around 10% of what you actually owe. Realistically, you can expect to pay between 30% and 50% of what your original bill is.

You might also be able to negotiate a pay for delete. This means the debt collector will have the account completely removed from your credit in exchange for payment.

The most important part of any negotiation is to get the settlement offer in writing; do not make any payments until then.

An account in collections can be bad news for your credit score and your finances. If you have an account that gets sent to collections, following these steps can help you remove it completely or lessen its effect.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. CreditCardXpo.com recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.