What to Do if Debt Goes to Collections

For one reason or another, life has given you lemons, and you’re in serious debt. Now, it’s time to make lemonade. The best thing to do with facing collections is to do a little proactive, focused legwork.

Collections can be scary, but don’t panic. Follow these 10 tips to prevent serious credit or financial damage as a result of debt collections.

Review the debt

Don’t accept collections at face value. These agencies are not infallible — they have made errors in the past. Review your debt amount, cross reference how much the collections agency is reporting, and look for discrepancies. You have 30 days to verify a debt after a collection agency has contacted you. Take this time to ensure all debt information is accurate.

Dispute items

While reviewing the debt be on the lookout for unusual, inaccurate or unfair items. This is not the time to be sheepish — when you dispute items the burden of proof is put on the collection agency. This means there really is nothing to lose. Worst case scenario, the dispute isn’t approved and you’re right back where you started.

Know your rights

While it’s true that loan delinquency got you in collections in the first place, that doesn’t mean you forfeit your consumer rights. Review the Fair Debt Collections Act, which protects you against harassment, threats, and regulates when collections is allowed to call you. Knowing your rights is a fundamental way of maintaining control when faced with collections.

Consider payment options

Due to the extreme scrutiny of your situation, it may not feel like you have many options, but in reality, you do. Your knee-jerk reaction might be to throw as much money at debt as you can but fight that urge. Try not to sacrifice life’s necessities to pay down debt. If you’re like most people, you probably can’t pay the debt in full, so set up a budget, establish a repayment plan, and stick to it.

Negotiate

Many think that collections are set in stone, but actually, you have more choices than you might think. While it’s not a guaranteed success, negotiation is an option. Whether you’re appealing to the creditor or collection agency, outlining hardship, mistakes or extenuating circumstance can help reduce debt amount or, at the very least, extend your payment deadline.

Understand statutes of limitation

Believe it or not, it is possible for debt to expire. The statutes of limitation for debt vary from state to state, and it’s your job to get to know them. This is important not only to better understand the shelf life of your debt but also to prevent inadvertently resetting the collections clock. There are many mistakes you can make which will prolong debt — sometimes it’s as simple as merely talking to a collections agent. Know the laws to avoid inadvertently extending your debt commitment.

Get to know the timeline

After the debt has gone through collections, it will remain on your credit report for seven years. This can be misleading — it’s seven years after delinquency, not from the date that you opened the account. This negative credit item can mark your score for a long time, but there are ways to soften the blow. For example, while collections do not disappear from a credit report after payment, a paid debt is viewed far more favorably than an unpaid one.

Know the consequences

If worse comes to worse, and debt goes unpaid for too long, the collections agency may try to sue you. At this point, the best thing you can do is remain resolute, and try not to buckle under the scrutiny of legal action. If you’re called to court make sure to show up, or else an uncontended judgment will be made against you. If you fail to attempt any sort of repayment, your wages might be garnished or your bank account can be frozen.

Reevaluate budget

If the debt has reached the collections stage, it’s safe to say that budgeting needs to become a priority. Your current lifestyle has to lead to serious debt and it’s clearly unsustainable. Maybe this was brought on by economic hardship or mere carelessness. But, either way, a change must be made. Start by making a budget, consolidating credit cards, cutting out unnecessary expenses and focus on paying down debt. This will be a long process, and nothing will change overnight, but you have to start somewhere.

Just breathe

When you receive threatening calls or letters it’s hard to keep your cool — just remember you’re not alone. The sky isn’t falling, but take this as a sign that it’s time to get your finances back on track. Maybe it’s time to evaluate your spending habits, do some budgeting, or seek out credit repair

If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

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