It can be stressful to receive a letter from a collection agency, but it does not mean irreparable damage to your credit rating. Collection letters often are not a surprise to those receiving them. It can be a matter of wanting to pay, but debt responsibilities exceed your ability to keep up with payments. A letter from a collection agency should prompt you to re-evaluate finances and prepare a new personal budget.
Reassess Your Finances
You need to start by examining your budget and finding areas where you can cut corners and find alternative ways to earn the money to clear up debt. Maybe you can put in five hours a week in overtime or take a part-time job. Consider selling personal items to pay off debt.
Do not ignore the letter or subsequent phone calls from the collection agency. Avoidance will not solve the problem and in doing so, your credit score could fall. As soon as you have assessed your financial situation, come up with a plan to pay and call the collection agency to negotiate. Most are willing to discuss payment plans.
Negotiate Payment Options
Rehabilitate your line of credit, where you recover a loan that has gone into default and again make it active. It usually is possible with student loans. Rehabilitation is better than liquidating property to pay off the debt in full. Rehabilitating a loan re-establishes a line of credit on your credit report and shows that you are making payments, which is good for your credit rating.
Express your desire to pay off your debt, and make an offer. It is best to tell the collection agency what you are able to do, such as sending a set amount every month or paying off 75 percent of it at once and having it considered paid in full. If you know you cannot make as big a payment as you had been making to the original creditor, offer to pay what you can afford. Keep interest and time in mind when you make an offer. A smaller monthly payment usually means a longer payment schedule with added interest. Regardless of whether or not you pay off the bill in full or negotiate for smaller payments, a positive report to the credit reporting agencies should be one of your stipulations. Most creditors will be willing to report that you are paying upon receipt of the first payment, but they may not do so without encouragement from you.
If you do not believe you owe the debt, do not pay it. This may be due to identity theft or wrongful recording by the original creditor. If you disagree with the amount or the validity of the debt at all, contact the collection agency and tell them you are disputing the debt and explain why you do not believe the debt is valid. Dispute the debt with the credit reporting agencies as well. Be prepared for challenges to your claims.