How to Pay Off a Debt that Is in Collections

Settle collections debts to save money in the long run.

Everyone at one time or another has struggled to pay debts, and most consumers know the experience of dealing with a collection agency if their accounts have become 90 or more days overdue. Past-due debt brings with it damage to your credit rating, harassing collections calls and legal filings. Overdue-collections debt can even impact your credit with current lenders. Addressing and paying off debts that are in collections can spare you needless headaches and save you money in the long run.

Things You'll Need

• Statement of your original debt
• Any communications you've received from a collection agency about the original debt

Instructions

1. Review the debt owed, noting the age of the debt and whether or not more than one collection agency has attempted to collect the debt. The older the debt is, the more open the collection agency may be to negotiating a favorable settlement. If another collection agency has already attempted to collect on it, they may be even more likely to settle easily.

2. Call the debt collector to negotiate the terms of your repayment. You have two goals: to settle debt for the least amount of money and to have your credit report updated to something positive in exchange for paying the account. Be honest with the collector and analyze your budget beforehand to ensure you know how much you can afford to repay. The worst-case scenario is to pay the debt in full without having your credit report updated to improve your credit score.

3. Write a letter reaffirming the repayment agreement you've made. Include with the letter a "pay for delete" letter---a written request offering to pay off the debt if the collection agency will delete the account from your credit report. If the agency won't delete the account, stipulate that they insert a positive statement of settlement into your report. (See the "Sample Pay for Delete Letter" in the Resources section below for an example of such a letter.)

4. Keep copies of any payments you make and of all written correspondence between yourself and the collection agency.

Tips & Warnings

• Always confirm any telephone conversations or agreements in writing, and do not send in any payment before receiving written acceptance of your negotiated agreement from the collection agency.

• While the collection agency's income depends on convincing you to pay the maximum about possible, they can be induced to take partial payment if they believe it is all you can afford to pay.

• Be aware that paying off a debt in collections will not necessarily improve your credit score, especially without a written agreement that the agency delete its negative information from your credit report.

References

• CreditCards.com: Lessons in Paying Off Delinquent Debt

Resources

• About.com: Sample Pay for Delete Letter
• National Association of Consumer Advocates: What Do You Do When a Debt Collector Calls?
• PrivacyRights.org: State Debt Collection Laws and Publications