Whether it’s because we didn’t have the money or just simply forgot, we’ve all had a bill go unpaid before. Welcome to adulthood. However, the problem is when these bills continue to go unpaid for whatever reasons, resulting in an account going into collections.
Having an account in collections can be frustrating.
Not only do you have to deal with unwanted calls from debt collectors, but you have to deal with the after-effects. The reduction in your credit score and derogatory marks on your credit report are just two of the things that you’ll need to address.
Though it can seem a bit overwhelming at first, there is a path to getting your finances back on track. In this article, I’ll share how to recover from an account in collections.
What to do with accounts in collections
Once an account goes into collections, it’s important that you make an effort to get it resolved as soon as possible. Legally, debt collectors have the right to sue you for unpaid balances. Ultimately, this can result in garnishment of wages.
Don’t let it get that far. As soon as you are notified (or realize) that your account has been put into collections, you need to act immediately.
1. Gather and verify the information your debt collector has
An account that is in collections is one that has been sold by your original creditor to a debt collection agency. This means that you will now have to deal with the agency to resolve the balance owed.
Before blindly making a payment in response to their phone calls, it is important that you get all of the information regarding the account. In some cases, you’ll find that a debt has been associated with your name and social security number, although it may not be yours.
To ensure that this isn’t the case, you can legally request the statement information for the account. This should include the original creditor, original balance, account number, and any additional fees that have been added on to the principal balance.
Cross reference this with your credit report that you can obtain from each of the three credit bureaus. Review this information for accuracy and proceed to access the options that are available to you.
2. Review your options for your accounts in collections
It’s important to know that although your account may be in collections, you have options. Use the below list to find an option that’s most suitable for your situation.
Disputing an account in collections
Having an inaccurate debt associated with your name can result from various reasons. Perhaps your identity has been stolen. In which case you’ll need to follow the identity theft protocol. Or, there may be someone with the same name as you whose debt has been incorrectly associated with your information.
Additionally, you should also provide a letter sent via certified mail to the collection agency with proof that the debt does not belong to you. At this point, the collection agency must be able to provide verification of the debt.
3. Negotiate a repayment or settlement plan
If the debt is indeed yours, you have the option of working out a repayment plan or negotiating a settlement for your account in collections. If you have the financial means, you may also elect to pay the account in full.
Before negotiating your repayment plan or settlement, it’s important to evaluate your current financial situation. Based on your current income and expenses, you need to calculate how much you can truly afford to pay on your debt each month.
After determining this number, explain your financial situation to the debt collector and begin negotiating a repayment or settlement plan that you can afford. If you are able to successfully do so, be sure to record what was agreed upon and get it in writing. Do not make any payments until you’ve received this documentation.
Additionally, you do not want these debt collection agencies to have access to any of your bank accounts. So plan to make your payments via money order or check.
4. Monitor your credit
Just because you repay or settle an account in collections, it doesn’t mean that it will be removed from your credit report immediately. Typically, delinquent accounts will remain on your credit report for seven years from the original date of delinquency.
After this time, this derogatory mark will be dropped from your credit report. You should continue to monitor your credit to ensure that it is removed. Although, there are other options available that can potentially shorten this timeframe.
How to Avoid Collections
It is important that you have a plan going forward to avoid having another account go into collections in the future. Here are a few things that you can do.
1. Create a budget that includes all of your bills.
Out of sight can mean out of mind. Make sure you’re aware of every bill that needs to be paid and that it’s accounted for in your budget. Allocate funds toward it so that it gets paid.
2. Automate your bill payments.
Even if it’s in the budget, you can still forget to make a bill payment. That’s why I recommend automating your bill payments. If you find that all of your bills fall into one pay period, contact your service provider and have the billing cycle changed.
3. Check your credit consistently for any suspicious accounts or inquiries.
Leverage a credit monitoring service so that you’re alerted of any changes right when they happen. You’ll know upfront if there is something on your report that shouldn’t be there and you’ll be able to dispute it immediately.
4. Communicate with your creditors if you’re having trouble making payments.
If you’re having trouble keeping up with your payments, call your lender immediately. Don’t wait until your account becomes delinquent to make a plan. You’d be surprised at how much your lenders will be willing to work with you if you’re proactive.
Know your Rights
Although you may have an account in collections, you still have rights as a consumer. There are laws governing what collection agencies can say or do. For more information on your rights, visit ConsumerFinance.gov.