The most significant issue related to maintaining debt is that your credit score is affected, limiting new credit opportunities. You may have difficulty buying a new car, purchasing a home, or getting a credit card. Beyond that, you’ll have to deal with the constant phone calls and letters you’ll receive from both offline and online collection services. The calls can not only be annoying, they may cause stress and be embarrassing. The debt is your responsibility, and you can make a real, achievable plan to pay off collections, freeing yourself from the pitfalls of carrying unpaid debt.
Debt ends up in collection if it is unpaid for a specific time period. The original creditor can then send the debt to an online collection service to retrieve the money owed. The debt collector then focuses on collecting the debt through various methods, including phone calls and letters.
After thirty days without payment, the creditor can report your delinquency to your credit record. Every subsequent thirty days without payment, the creditor may add additional entries that appear on your credit report, negatively affecting your credit score. When the debt is sold to an online collection service, it is flagged as such, and your credit score will drop significantly. Once in collections, the debt remains on your credit report for up to seven years.
How to Pay Off Online Collection Services
When you have debt in collections, it’s best to take some steps to protect yourself before making a payment on it. Confirm it’s your debt. This seems like an obvious detail, but many people assume that the debt collection agency is correct without actually looking into the debt. Not only should you verify the debt against your own records, but check the balance listed. It’s also wise to contact the original creditor to verify that you are working with the right online collection service.
Check the statute of limitations. The statute of limitations refers to the period of time in which a debt can be actively collected. Every state has a different time limit. Don’t make any payments until you confirm that the debt has not reached or is not nearing the statute of limitations. If you make a payment – or even contact an online collection service – the statute of limitations resets. This means, if you do nothing more than call the collection agency, they can reset the collection time.
Negotiate a payment plan or settlement. Once you’re certain that the debt is yours and the amount is accurate, it’s time to work with the debt collector to establish an acceptable payment plan.
Three Ways to Pay Off Online Collection Services
1. Offer a lump sum payment. You can pay the entire amount owed to settle the account in full. The benefits of this option are that you won’t have to negotiate with the online collection service and you’ll get a faster boost to your credit score. The downside is it’s often a large sum of money and must be paid in full.
2. Work out a payment plan. Most collection agencies will work with you to develop a payment plan that is within your budget and meets their payment needs, allowing you to pay off the debt over a certain amount of time. Be sure you get a written agreement that clearly expresses exactly what you are to pay, when and the final payment date. Once you’ve made your last payment, the debt will be marked as “paid in full” on your credit report.
3. Work out a settlement. Most online collection services will be willing to settle the account for less than your original debt. You may have to negotiate to find a lump sum amount that you can afford and that they are willing to accept as payment. The downside is that your credit score may suffer and your report may list the debt as having been settled.
After you’ve made your last payment or have paid a lump sum amount, you can request a letter of completion. Make sure that your credit report has been updated to reflect your payment. It may take thirty days before the update has been processed by the online collection service and the credit bureaus. Your credit score should increase to reflect the debt payment.
While paying off your debt may seem like a lengthy process, it is your responsibility and will be a final solution to your debt problems. Remember to protect yourself against scams by ensuring that the collection agency is the one handling your debt and the amount is correct. Never give out your bank information. Pay with a cashier’s check or certified funds and keep a detailed record of any agreements or payments.
It’s important that you take steps to clear away old debt and improve your credit score so that future purchases are easy for you and your creditors.