How to Deal With Debt Collection: A 4-Step Guide
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Debt collectors can contact you via phone, mail, email or text.
You have a right to ask for debt verification and validation letters.
The Fair Debt Collection Practices Act outlines what debt collectors can and cannot do.
You can set up a payment plan, settle your debt or pay it off in full.
Low-cost or free legal aid may be able to help you if you receive a court summons.
If you’re facing calls from debt collectors, make sure you understand how debt collection happens, the best way to resolve your account and what this means for your credit — before you pay anything.
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What is debt collection?
Debt collection is the process of recovering money owed to a creditor. Debt collection happens when a debt goes unpaid for a period of time. The overdue payment may be reported as delinquent starting 30 days after the due date. You’ll get notices and possibly calls from the creditor seeking payment.
At some point, usually after 120 to 180 days of nonpayment, the creditor — such as a credit card company, bank or medical provider — gives up on trying to collect. The original creditor may then sell your debt to a debt collection agency to recoup losses. It’s the same debt, and you still owe payment — it’s just that a third party has bought the right to collect.
How to deal with debt collection
Follow these step when dealing with a debt collector:
1. Verify the debt
You have the right to demand debt validation and debt verification letters; use it. You should receive a validation letter from the debt collector within five days of first contact. Check it over for details about the age, amount and history of the debt, and information on who's trying to collect. Consult your own records — including your credit reports — to corroborate details of the account. If you need further information, request a debt verification letter.
2. Know your consumer rights
Learn about your consumer rights under the Fair Debt Collection Practices Act so you know what collectors aren’t allowed to do — such as call you at unreasonable times, threaten you with arrest or use obscenities. Some states have even more protections for consumers; find your state’s laws online or contact the state attorney general’s office to learn more .
3. Choose a debt payoff method or dispute debt collection
The two most common ways to handle a debt in collections are choosing a payoff method or disputing the debt as being in error:
There are a few options for paying a collections account: setting up a payment plan, wiping out the debt with a single payment, or settling the debt to reduce the amount you owe. No matter which option you choose, do not give the collector permission to access your bank account, either by providing your debit card number or setting up automated debits. If you make an agreement for a payment plan or to settle the debt for less than is owed, get the agreement in writing so you can hold the collector accountable.
You can dispute the debt if it's not yours, or ask for a goodwill deletion if you've already paid it off. The agency must stop collection efforts and investigate. During this time, it can’t put the issue on your credit reports. If it finds the debt valid, the collector will mail you documents verifying the bill. If not, it will stop attempting to collect the debt.
4. Never ignore a court summons for debt collection
Lawsuits for collections accounts are a common and efficient way for collection agencies to get payment. These lawsuits can result in wage garnishment, and a bank levy or a lien on your property. Hire an attorney who specializes in debt collection defense. If you can’t afford court costs, look for low-cost or free legal aid programs near you via the Legal Services Corporation or LawHelp.org.
Does debt collection affect your credit score?
Yes. In general, debt collections will remain on your credit reports for seven years from the point the account originally became delinquent.
Some of the newer credit scoring models — such as VantageScore 3.0 and FICO 9 — ignore collections that have been paid. But FICO 8 credit scores, the ones most widely used in lending decisions, will consider even paid-off collections if the original debt was over $100.
Like other negative marks, collections showing on your credit reports will hurt your credit, but the effect will lessen over time.
Of note: Medical debt gets some special treatment, which reduces its effect on your credit:
Unpaid medical bill collections with an initial balance of less than $500 are no longer reported by the three major credit bureaus.
Paid medical collections have been erased from credit reports and are no longer reported.
There is a year-long waiting period before medical collections appear on your credit report.
Scoring company VantageScore excludes all paid and unpaid medical collections from its calculations, regardless of how much is owed or how long the debt has been in collections.
You can find more information and resources on debt collection on the Consumer Financial Protection Bureau’s website .
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