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How to Pay Off Collections

We know . . . having a debt go into collections is an embarrassing situation. And now you’ve got creditors calling you nonstop at home while you’re already stressed about making ends meet. Debt collectors are ruthless and relentless. They’ll stop at nothing and literally say anything to get you to pay up. It’s a pretty scummy business.

But what if you could stop all the nasty phone calls, voicemails and letters? What if you didn’t have to hide inside your own life anymore? Well, to do all that, you’ve got to pay off your debt—and you can do that with the right plan.

Understanding how to pay off collections takes a little research, but it’s worth every bit of effort—both financially and mentally. So let’s get right to it.

How to Pay Off Debts in Collections

  1. Confirm that the debt in collections is real and yours.
  2. Check the statute of limitations on the debt.
  3. Tell the collectors not to contact you.
  4. Make a plan to pay off the debt.
  5. Contact the collection agency and make payments.

That’s all there is to it. And it sounds pretty simple. But here’s the truth about paying off collections debt (or any other debt): Getting out of it is only 20% head knowledge and 80% behavior. You have to get mad, get serious, and get working to change the financial course of your life. The debt cycle only ends when you decide to change your behavior.

That mindset shift is the first and most important step in paying off your collections debt. But it won’t make debt collectors call off the dogs. For that to happen, you’ve got to make an actionable plan to clean this mess up as quickly as possible so you can get your life back on track.

When it comes to actually paying off collections debt, you need both the mindset and a plan. So if you’re ready, let’s go through the plan.

1. Confirm the debt.

Before you hand over any money to a debt collector, you (yes, you) need to confirm that the debt they’re calling you about is actually yours. Don’t leave it to a debt collector to tell you what you owe.

So what should you do? Request a debt validation letter from the collector to make sure everything is on the up and up. A debt validation letter gives you valuable information about the debt the collector is calling about, including:

  • The name of the creditor the collection agency is representing along with proof of the balance: Most of the time, debt collectors aren’t the original owners of your debt, meaning they’ve purchased your debt from a creditor.
  • The age and amount of the debt: You need to check your records against the collector’s. Any errors need to be fixed on your credit report.
  • Confirmation that the collection agency has the authority to collect on your debt: Avoid a potential scam by making sure the people you’re paying back actually have the authority to request it.

Why a letter? Well, lots of debt collectors are pretty scummy people. They’ll use any means necessary to go around the law and make you pay (translation: they’re dishonest). That’s why you need to request a debt validation letter by certified mail with a return receipt so you have a paper trail recording every step you’re taking in the collections process. The collector is required by law to send you a validation letter within five days of the first time they contact you. But go ahead and request one anyway. It’s the best way to protect yourself if a collection agency tries to backpedal later.

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If the validation letter shows incorrect information about the remaining balance or even that the debt isn’t yours at all, you have 30 days to dispute it.

2. Check the statute of limitations.

All consumer debt—think credit cards, mortgages and auto loans—have statutes of limitations around them. That means after a certain amount of time (could be three years, could be as many as 15 years, depending on where you live), creditors can no longer take legal action against you to make you make good on your debt. Which means the collection agencies they’ve sold your debt to can’t either.

Now, this isn’t a get-out-of-jail-free card! Let’s say the statute of limitations in your state on a defaulted auto loan is seven years. That doesn’t mean you can sit on your hands for seven years and wait for the debt to “disappear.” Try that and your car will be repossessed way before then (if you still have it).

See, the debt doesn’t disappear. Debt collectors can still contact you after the statute of limitations has passed. They just can’t take legal action against you. Also, it doesn’t take much to send your debt right back to square one as far as statutes go. Any contact (from you or the creditor) or any payments you make (no matter how few and far between) count as “activity” and can restart the statute clock. 

The waters can get a little muddy here—especially if you’re nearing the end of a statute of limitations. But remember, you’re an adult trying to set the record straight. It’s not worth dodging trouble (and phone calls) for the rest of your life. When you take responsibility and pay back what you owe, you’re acting with integrity. There’s no price tag you can place on that.

3. Tell the collectors not to contact you.

Anyone who’s dealt with debt collectors knows how nasty they can be. They call you over and over, send you letters—they can even reach you through social media, text and email!1 These people are the lowest of the low (well, timeshare salesmen that lock you in a room for an eight-hour presentation might be lower).

Take a look at the experience one of our Ramsey Baby Steps Facebook community members had with a debt collector:

“When my son was a few months old, the debt collector for my student loans was calling nonstop,” said Julie. “She told me I should never have had a child if I couldn’t pay my bills and suggested she could have him taken away if I didn’t start making payments. I was 19 years old.”

That’s so scummy! But here’s the thing: Just because you’re behind on payments doesn’t give collectors the right to mistreat, harass or abuse you. You’re still a person, and you have legal rights and protections.

The Fair Debt Collection Practices Act (FDCPA) spells out exactly what debt collectors are allowed to do under federal law. And they’re not allowed to use abusive, oppressive, unfair or deceptive tactics to get your money.2 On top of the FDCPA, there are laws in individual states that go even further to keep debt collectors in line.

Look, you can’t wave a magic wand and make money you don’t have appear—no matter how much pressure a debt collector puts on you. So you don’t have to listen to it. If you feel harassed at all while talking with collectors, you can kindly remind them that what they’re doing is illegal. That usually shuts them up pretty quick.

Speaking of shutting up debt collectors, you can actually make them stop contacting you. Yep . . . thanks to the FDCPA, all you have to do is send them a letter (making sure you save a copy for yourself—again, paper trail) saying you want them to stop contacting you. After that, they’re only allowed to contact you to say they won’t be contacting you anymore (ironic) or that they’re taking legitimate legal action against you (like a lawsuit).

4. Make a plan to pay it off.

Now comes the most important step in the process: actually coming up with a payment plan. After all, when it comes down to it, all these bottom-feeding debt collectors care about is getting your money. So you’ve got a few options, and the best one for you will depend on your individual collections situation.

Pay in Full

It’s pretty simple: If you owe the money and have the money, you should pay the money. Paying in full is always the best way because you’ll avoid paying more in interest and late fees. Why pay more when you don’t have to?

This might apply if you have the money but forgot to pay something. It happens. An innocent mistake for sure but one that can have a lasting impact if you don’t pay it off.

Got the cash? Great! Don’t have the cash but could quickly sell some stuff to get it? That’s great too. If it’s possible to pay it all off, do it.

Settle the Account

Depending on your circumstances, you could settle your debt for pennies on the dollar. That means the collector wipes out 50% or more of your debt and you agree to pay a lump sum for the rest. Like with paying in full, you avoid the extended payment timeline, which means avoiding interest and fees on the debt.

If you’ve got a big debt that’s been in collections for a while, the debt collector may be more willing to settle your debt just to get something out of you. But if they bite on that offer, be ready to pay the agreed-upon amount right then and there (after getting the agreement in writing, of course).

Settling might sound like the way to go (who doesn’t want part of their debt forgiven?), but there are some drawbacks to this plan. The debt doesn’t go away completely. Because the creditor could list it as a “partial payment,” which could hurt your credit report. And if that isn’t enough, the IRS can count the forgiven debt as taxable income if it’s over $600. More taxes are never good (well, at least for the taxpayer).

Negotiate a Payment Plan

These debt collectors are probably going to offer you a payment plan on their terms—which may not be in your or your family’s best interest. So be ready to counteroffer with a plan you can actually afford. Let them know how much you can pay each month, and show them how you came up with that number.

Even if you can’t make the minimum payments, most of the time, the debt collectors will take something over nothing.

The Pro Rata Plan

Speaking of something being better than nothing—if you’re in collections because you don’t have enough money coming in to pay your bills, you’ll need to take more drastic measures to get out of the hole you’re in. This calls for the pro rata plan, which is Latin for “fair share.”

The pro rata plan gives your creditors their “fair share” of the money you have left after you pay for all your basics (what we call the Four Walls). Even $5 a month can keep the wolves away from your door temporarily. But only use the pro rata plan when you have no other options—and only until you get your income up enough to take bigger chunks out of your debt.

5. Contact the debt collector and make payments.

Once you have your payment plan in place, reach out to the agencies and let them know what you can do. This means negotiating, and it’s not going to be easy. The collectors will ask for more than you can pay, so you’ll have to stand your ground. Be polite but firm, and don’t put up with any bullying or arm twisting from those guys.

Besides, the sooner you nail down agreements with the collection agencies, the sooner they’ll back off.

When you do send them money, make your payments with a cashier’s check via certified mail. Never, ever allow a debt collector access to your bank account. That means you shouldn’t give them any info about your bank, your account number, nothing. Remember, debt collectors are scummy people, and there’s no guarantee they won’t take more than you agreed to if you give them access to your account.

And always, always, always get everything in writing—every single time you contact a debt collector, every single step, no matter what. We know we might be harping a bit on this, but you need proof of every conversation, every agreement and every payment. You’re dealing with scummy people, remember?

If you’re sending correspondence of any kind to collection agencies, make a copy, send it via certified mail, and request a return receipt so you can know for sure your documents were received and when. This is especially important when you send in your final payment.

Then, staple the payment agreement, the certified mail return receipt, and a copy of the cashier’s check together. Hold onto all of it forever (yes, forever) just in case the collection agency rears its ugly head again.

What Happens if You Don’t Pay a Debt Collector?

Debt collectors have one job: to get your money. And most of them can outlast your frustration, embarrassment or evasion.

As jerky as debt collectors can be, you do have a responsibility to try to make good on your debts. And if you continue to miss payments after you’ve been sent to collections, collection agencies have the right to sue you. If that happens, you’ll have to appear in court, and the judge is almost guaranteed to side with the collection agency.

Judges aren’t concerned with circumstances or details. For them, it’s cut-and-dried: If you owe the money, you’ve got to pay it. And if you don’t make your court-ordered payments, then the collection agency can get an arrest warrant.

Avoid Debt Collection Scams

When you’re in debt, anything that looks like a solution to getting out of debt sounds good. Sleazy debt collectors are a dime a dozen, and so are their ugly counterparts: credit report clean-up companies and companies that promise to settle your debts for you. Don’t ever pay someone to provide these “services.” They’re scams designed to squeeze even more money out of hurting people.

You may be in debt, but you’re not desperate. Get all the facts about your debt, and make a plan to wipe it out. That’s the only way to take care of debt collectors for good!

Don’t Take on More Debt

Debt is what got you into this mess, so why would you turn to debt to get you out of it?

Many of the scams we mentioned above offer “relief” and debt settlement—but they actually saddle you with even more debt to pay off the debt you owe. And the scammers get rich doing it. Things like personal loans or debt consolidation aren’t technically scams, but they fall in the category of desperate things people do to try to pay off their collections debt.

Those plans don’t free you from debt. They just put you in a different kind of debt—for even longer. It’s like trying to get out of a hole by digging deeper. It doesn’t work. On top of that, your behavior with money doesn’t change when you take on more debt, so your situation goes from bad to worse. Stop digging!

Again, your goal isn’t just to get out of debt but to change your whole outlook on money so you never get into debt—or have to deal with debt collectors—ever again.

Life After Debt Is Possible

We get it. Things happen in life, and messes are made. We’ve all been there. The fact that you’re here reading this says a lot about who you are. You want to do better. You want to be free.

Debt is serious business that needs to be taken care of—not so you can make debt collectors happy but so you can live debt-free. Stand up for yourself, don’t be afraid of them, and pay down your debt as fast (and as wisely) as you can.

But that’s just the first step. Like we said at the beginning of this article, kicking debt out of your life takes real commitment. And it might look like a giant mountain in your way. But here’s the thing . . . you can do this.

Remember our friend Julie from earlier? She was drowning in student loan debt and getting harassed by collectors. But a few years later, she paid off her debt from that nasty student loan collector and felt such a sense of peace and freedom.

“No debt payoff I’ve had (and I’ve been debt-free since 2020) has ever felt as good as when I paid that one off!” she said.

Julie (and millions of others) are debt-free, and you can be one of them. With a Ramsey Preferred Coach (RPC) on your side, you’ll learn how to not only survive but thrive. So, are you ready to hope again? Schedule a complementary session with an RPC—and get rid of your debt (and collections) for good!

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Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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