By Jennifer Tucker
May 2, 2024 | 2 Min. Read
Being “in collections” means your creditor has assigned your debt to a third-party debt collection agency to try to collect payment from you. This occurs after a certain period of non-payment has lapsed and the creditor’s attempts to collect payment from you directly have failed.
When a debt goes into collection, it means the creditor has given up trying to collect payment from you directly and has transferred or sold the debt to a third-party debt collection agency. These agencies, or debt collectors, will attempt to collect the debt from you on behalf of the original creditor.
The debt collection process typically involves these steps:
The best way to get out of debt collection is to be proactive. Reach out to your creditor or the debt collector and arrive at a solution. This may involve seeking assistance from a financial counselor or credit counseling agency, establishing a payment plan with the creditor, or settling the debt for less than the full amount. Remember, they key is to work with you bank/credit union or a non-profit organization.
Whether you should pay off your debt sent to collections depends on your financial situation. Paying off your debt may be necessary to improve your credit score and avoid legal action. Making payments on a collection will help prevent legal activity, however, making payments will not necessarily improve your credit score until the debt is paid off. The best course of action is to target and annihilate collections if possible.
If you never pay your debt sent to collections, it may continue to accrue interest and fees, and your credit score will likely be negatively impacted. Debt collectors may also choose to pursue legal action against you, which would significantly impact your financial future. Collections do fall off your credit report after 7 years.
The best way to deal with collections is to be proactive. Instead of avoiding your debt, communicate with the creditor or debt collector. Be honest about your financial situation, explore solutions, and propose a plan for repaying the debt. You should also be aware of your rights under the Fair Debt Collection Practices Act (FDCPA). Learn more about how to talk to creditors and debt collectors by reading our blog below.