Past due accounts are sometimes sold to collections agencies. These agencies buy the debt and then try to collect it.
When an account goes into collections, it will cause a big drop in your credit score. After the big drop, it won’t have any more impact. It has done all the damage it can do.
If a debt collector contacts you about a debt, it is a good idea to verify the debt to make sure you owe what they say you owe. You can use the template below to request verification of the debt.
If you do nothing, the debt will be removed from your credit report in 7 years. There is a chance that a debt collector will try to sue you for the debt and have it garnished from your wages.
If you are on SSI or SSDI, your benefit is judgement proof. That means that a debt collector cannot garnish your wages. Only the government, child support, or spousal support can garnish your wages.
If you verify that the debt is yours and the amount owed is correct, and you have money the money to pay off the debt, it is best to do it in a lump sum. The debt collector may accept less than the full amount owed. You can start with offering around 30% of the amount as a lump sum payment. Always get your agreement in writing before making any payments.
A collections account cannot be used to build credit, because the account is closed. Your score may improve if you pay it off in full, but monthly payments on a closed account will not improve your credit score. We do not recommend setting up a payment plan with a debt collector. It is best to save up and negotiate a lump sum payment.
You can use this resource from Credit Builder’s Alliance for more detailed planning, including scripts to use when communicating with the debt collector.
Deal with Collections Debt_.pdf
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To Do: Send debt verification letters for any collections debts. If the debt is verified, and you have the money for a lump sum payment, contact the debt collector and try to negotiate a payment for less than the full amount owed.
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Tip: Always verify a collections debt before making a payment.
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