How do I make a payment to a debt collection agency?

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In a Nutshell

After reviewing your budget and creating a payment plan, find the debt collection agency’s information by looking at your credit reports. Your debt may have been bought and sold by multiple agencies, so checking your most-current reports is crucial.

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A call from a debt collection agency is a call nobody wants to receive. But if you become significantly delinquent on a debt, you may need to deal with a debt collection agency in order to pay back the money you owe.

Before we go any further, let’s agree on one thing: Unpaid debts can be stressful and confusing. You may not even be sure how your debt ended up with a debt collection agency in the first place. But it’s important to look beyond the potentially intimidating letters and phone calls to understand what’s really happening — and come up with a solution that works for you.

In this article, we’ll go over how to make a payment to a debt collection agency. Here’s a basic outline of the steps, in case you’d like to jump ahead.

  1. Double-check that you actually owe the debt
  2. Calculate how much you can afford to pay
  3. Contact the debt collection agency
  4. Make your payment

Looking for more information related to debt collection agencies?

After we go over these steps, we’ll review how a debt ends up in collections and how debts in collection affect your credit.

 Looking for debt relief options related to the coronavirus? See our resources.


How to make a payment to a debt collection agency

1. Double-check that you actually owe the debt

Even if you’re ready to take care of your collection accounts, you may want to pump the brakes. First and foremost, take a look at your credit reports to gather a few key details about your debt.

Errors happen. Don’t let them happen to you.

Credit reports are not infallible. Sometimes, lenders make mistakes about how much you owe and report the wrong information to the credit bureaus. Errors can also happen for other reasons.

To offer some eye-popping context: Since 2015, through the Credit Karma Direct Dispute™ tool, more than $10.2 billion in erroneous debt has been removed from TransUnion® credit reports.

See an error? Make sure you reach out to both the lender that issued the inaccurate information and the credit bureau that’s reporting it. It’s also good practice to notify all three major consumer credit bureaus to make sure the mistake isn’t repeated.

If you have questions about whether you’re liable for a debt, it can be helpful — crucial, even — to consult with a credit counselor and a lawyer.

You may also want to review the rights afforded to you by the Fair Debt Collection Practices Act, which aims to end abusive debt collection practices by debt collectors.

FAST FACTS

Is it legal for a debt collector to harass you?

No! According to the Fair Debt Collection Practices Act, “a debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.”

If you’ve been receiving threats or repeated, annoying phone calls, we recommend consulting with a legal professional before proceeding with a debt payment plan. You can also report any problems you have with a debt collector to your state Attorney General’s office, the Federal Trade Commission and the Consumer Financial Protection Bureau. If your state has debt collection laws that differ from the Fair Debt Collection Practices Act, your Attorney General’s office can let you know exactly how they differ.

2. Calculate how much you can afford to pay

Say you’ve determined that you do, in fact, need to repay your debt. Next, you’ll want to start thinking about what it will cost you to do so.

Before having a conversation with a debt collector, review your budget to see how much you can realistically afford to pay.

It’s crucial to do this first, since failing to uphold your repayment agreement (or only paying part of what you owe) could restart your seven-year period of credit reporting and restart your period of legal liability.

The best payment option depends on your personal circumstances. Generally speaking, you have two payment options.

  • Lump sum payment, or paying off all your debt at once, is the fastest way to resolve a collection. It’s typically the most cost-effective, too, since it could give you leverage to negotiate a lower payment amount. But be warned that settling an account for less than the full balance owed may not be ideal in terms of your credit. Since you didn’t pay off the entire debt as agreed upon originally, your lump sum payment may not have as positive an impact on your credit scores as paying the original account in full.
  • Installment payments can help you manage the financial burden of repaying a large debt by spreading it out into monthly installments. But this option can put you at risk of restarting the statute of limitations on a debt and restarting the time period for how long the negative information continues on your credit reports.

Can I negotiate with a debt collector?

Collections debt is often purchased for pennies on the dollar, so you may be able to satisfy your debt collection agency by offering as little as 30% to 80% of what you owe.

Generally speaking, the closer the statute of limitations is to expiring, the more negotiating power you may have. Note that if you make a settlement and your lender cancels all or some of your debt, you’ll normally be taxed on any debt you didn’t have to pay. That’s because the IRS usually considers it as income.

Just remember that entering into a settlement agreement may come with consequences in terms of your credit and the taxes you owe at the end of the year.

3. Contact the debt collection agency

Once you’ve determined how much you’re able to pay, the next step is to reach out to your debt collector.

While you may be tempted to let a third party manage the negotiations for you, you may want to reach out to your collector directly. Hiring a third party to settle or negotiate your collection debt can be expensive. In cases where the third party may not be reputable, it could also further damage your credit and put you at risk legally.

You can typically find your collector’s information on your credit reports from the three major consumer credit bureaus. Since your debt may have been bought and sold by multiple collectors, be sure to look at your most-current credit reports to determine which company to contact.

Credit Karma offers free credit reports from two of the major consumer credit bureaus, TransUnion and Equifax.

The next step is actually getting on the phone with an agent from the debt collection agency. In addition to agreeing on a payment arrangement, here’s what to ask for.

  • The agent’s name and direct contact information — Ask for this info in case you need to speak with that agent again.
  • Updates to your credit reports — If the agent can’t or won’t agree to remove the paid account from your credit reports, ask if the agent can update the account to “paid as agreed upon” once your payment(s) are received.
  • A written copy of your agreement — Make sure it includes payment information and the updates to your credit reports you agreed upon.

4. Make your payment

Once you’ve received a written agreement from your debt collector and reviewed it for accuracy, then — and only then — should you take the final step of submitting your payment.

Be sure to thoroughly document your payment so you can prove you’ve upheld your end of the deal. Consider paying a little extra to send it by certified mail and get a return receipt. Having this kind of documentation can not only help you prove you’ve paid your debt, but it can also help you dispute a credit reporting error if your payment information isn’t updated correctly.


How do debts end up in collections?

A collection can result from a debt that hasn’t been paid on time. If you fail to pay off a medical bill or credit card bill, for example, the original company owed may write off your debt as a loss and sell it to a debt collection agency.

Generally speaking, companies sell your debts to debt collection agencies after you become severely delinquent on a payment. Think of it as a last resort, of sorts. While different creditors and lenders have different definitions of “severely delinquent,” in most cases accounts are sent to a debt collection agency after 90 to 180 days of nonpayment.

The debt collection agency will then attempt to recover the money owed. In some cases, this could mean a nonstop litany of phone calls and notification letters.

How do debts in collections affect your credit?

Once the original creditor or debt collection agency reports the account in collections to a credit bureau, the account will typically be marked on your reports with a “collection” status. Unfortunately, accounts reported as being in collections can have a significant effect on your credit scores.

The actual number of points your scores drop may vary depending on the credit scoring model, but your payment history is typically considered a high-impact credit factor across different scoring models. Generally, the higher your starting score the more points you could lose.

Why credit scores differ between credit reporting agencies

Collections accounts won’t disappear from your credit reports overnight. A collections account typically stays on your credit reports for up to seven years, plus 180 days from the date the account first became past due.

The good news is that the negative impact to your scores can decrease over time, until the account drops off or is removed from your reports. For more on this — and what you can do to mitigate any negative effects — read our article on how debts in collections affect your credit.

How do debts in collections affect you legally?

A debt collection agency may or may not choose to sue you for your unpaid debt. Each state has its own statute of limitations that determines how much time a debt collection agency has to take legal action, but for many states it ranges from three to six years.

Heads-up: If you receive a summons to appear in court but you ignore it, a court can issue a judgment against you. If that happens, the debt collection agency might be able to garnish your wages to collect on the judgment.

Knowing what a debt collection agency is, is the first step. But knowing how to make a payment to a debt collection agency can be just as tricky.

If you’re receiving harassing calls about your debt but can’t get much clarity on how to pay it off, we’re here to help. It’s important to understand your options — and your rights — before being pressured into a bad repayment agreement.


Looking for debt relief options related to the coronavirus?

If you’re having a hard time making payments because of the COVID-19 pandemic, you’re not alone. Millions of Americans have experienced layoffs, furloughs and cut hours at work, which may make it difficult for many to pay rent, mortgages, auto loan bills, utilities, credit card bills and more.

Fortunately, the federal government, some mortgage and auto lenders, along with some credit card issuers have announced measures that might help relieve some financial burden and help you manage your payments and debt. Below is a summary of those resources.

Government relief measures

Relief measures from lenders and credit card issuers

General tips on budgeting and paying down debt

If you’re looking for general tips on how to budget or navigate your debt, we can help you with that, too. Check out some of these advice articles.


Bottom line

Settling debt in collections is probably the least fun thing you’ll ever do — but that doesn’t mean you should ignore it. Hiding from your lenders and collectors can only make things worse.

If you’re ready to face the issue, check out the Credit Karma Guide to Debt for more tips on when and how to pay down debt of all shapes and sizes.