Don’t let debt get you down. Whether you have a sizeable amount of student loan, credit card or personal loan debt, you should know that you aren’t alone. The Urban Institute found that an estimated 71 million Americans have debt in collections.
In a 2017 survey of more than 1,000 student loan borrowers, Student Loan Hero found that 61% feared their student loan debt worries were spiraling out of control. This stress led to 71.5% reporting headaches, 64.5% suffering from sleepless nights, and 50% experiencing upset stomachs, among other negative physical symptoms.
Delinquent debt is damaging to your financial health as well. The Treasury’s Bureau of the Fiscal Service warns that if you owe a delinquent non-tax debt to a federal agency, that agency is usually required to report it to a credit bureau. Your credit score may be negatively impacted by a report of unpaid debt, making it harder to qualify for a loan or other financial product.
The longer you have debt in your life, the longer you may feel the negative physical, mental and fiscal effects of the debt you owe. No debt payoff plan needs to look the same, but you may want to consider these options for paying off your debt in collections.
How to pay off debt in collections
1. Set up a payment plan
Not all debt collectors will accept a payment plan, but if you cannot pay off your debt in a lump sum, it’s worth asking them if it’s an option for you. After receiving notice from a debt collector, sit down and calculate realistically how much you can afford to pay each month. Having a payment plan proposal ready may make your negotiations with a debt collector easier.
The Consumer Financial Protection Bureau recommends not paying more than you can afford as this can lead to financial struggles with other bills, potentially causing more debt. A credit counselor or attorney can help you with this process, but don’t trust companies that claim they can settle, renegotiate or change the terms of your debt.
Once you’ve come to a payment plan agreement with a debt collector, get your agreement in writing before you make a payment to ensure the terms of your deal are met by the collector.
2. Don’t pay off old debt
Generally, there is a statute of limitations on debt, which means that debt collectors can collect a debt for a set amount of time. The statute of limitations on debt varies based on the type of debt and laws in your state regarding collection. Learn your options regarding old debt because under certain laws, acknowledgement of debt or making a payment may cause the statute of limitations to start over.
3. Utilize a credit counseling service
USA.gov recommends working a credit counseling service that provides resources to help you with debt management. Counselors generally review your entire financial situation and create a personalized plan for a healthy financial life. You may find these services for free or at a low cost at credit unions, religious, organizations or nonprofit agencies.
Before you begin working with a credit counseling service, make sure that they are accredited with either the National Foundation for Credit Counseling (NFCC) or Financial Counseling Association of America (FCAA).
Beware these debt collection traps
1. Paying electronically
Unless a collector successfully sues or seeks a court order for access to your bank account or paycheck (garnishment) then they cannot take money directly from your bank account to pay your debt. Paying electronically can also provide collectors access to your bank account if they are given your account number. Unless legally mandated, you do not need give them that access.
2. Not verifying your debt
Just because you’ve received a notice from a debt collector doesn’t mean that you necessarily have debt. Mistakes can happen, which is why before you pay a debt collector you need to verify that you actually owe all or any of the debt.
After first contacting you, a debt collector must send you a written “validation notice” within five days. The notice must contain the following information:
- How much money is owed
- The name of the creditor you owe the debt to
- How to proceed if you don’t believe the debt is yours
The Federal Trade Commission advises that even if you don’t think the debt is yours, you should talk to the collector at least once. This should give you the opportunity to confirm whether or not the debt is really yours. Be careful not to share any personal or financial information with the collector during this conversation.
If you think you don’t owe the debt, then you can send a letter to the collector stating that you don’t owe all or any of the money they are requesting. You can also ask for validation of the debt. If you do so within 30 days of getting the validation notice, then the debt collector must send you written verification of the debt before they can begin the collection process again.
3. Not knowing your rights
Just because your debt is in collections, does not mean you aren’t protected against certain actions a debt collector may take against you. The Fair Debt Collection Practices Act (FDCPA) protects you from harassment from collection agencies.
Some of these rules include:
- They can only call you between 8 a.m. and 9 p.m., unless you explicitly choose another time to be contacted.
- If you have an attorney representing you for a debt collection matter, the collectors should contact your attorney and not you directly.
- If they are aware your employer prohibits you being contacted at work by them, they cannot contact you at work.
- A debt collector cannot harass you, make threats, call you incessantly or use inappropriate language.
- If you notify a collector in writing that you don’t want to receive communication from them or that you refuse to pay a debt, they can no longer contact you unless they are acknowledging your communicated request or are informing you of a remedy for your debt.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.74% – 16.99%1||$5,000 - $100,000|
|7.54% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|