If you have debt in collections, you're not alone. In fact, according to the Urban Institute, as many as 71 million adults in the United States owe money to debt collectors. But while it's very common to owe money to debt collectors, that doesn't make coping with collection efforts any less stressful.
The good news is, there are laws that protect you when you owe so collectors can't engage in abusive or harassing behavior. You also have options for dealing with the unpaid debt balance and getting the collectors off your back.
However, as tough as it is, you'll need to do your research and tackle the problem head-on if you want to resolve it. This guide can help you understand when you should set up a collection agency payment plan.
4 steps to take before you pay a collection agency
In most cases, the only way to get out of debt is to make at least some payments to the collection agency. But you don't just want to start sending money to debt collectors. There are some steps you should take first.
Step 1: Know your rights
Far too many people are bullied into spending money they can't afford on past due debts because of threats or abusive behavior from debt collectors. To make sure this doesn't happen to you, be aware of protections that have been put in place by the Fair Debt Collection Practices Act.
The FDCPA imposed many limits on what debt collectors can do. For example, collectors can't harass you, use obscene language, or threaten legal action against you if they don't plan to actually sue you. They can't pretend you've committed a crime or make any false statements. And, upon your request, they are required to provide proof of what you owe.
Collectors also can't garnish your wages without a court order. Plus, they can only take a certain amount of money from you even if the court orders wage garnishment after a collector sues. And if you request collectors stop contacting you, they have to do so — although they can continue to report delinquent debt to credit reporting agencies and take other steps to collect such as pursuing a court case against you.
Step 2: Understand what you owe
Collectors are required to provide proof of your debt obligations and to show you what you owe. You simply need to request details on your outstanding debt and collectors can't continue to try to recover the unpaid balance from you until they provide this information.
You should also check your own records to make sure collectors aren't trying to collect debt that you've already paid off or debt that has been discharged in bankruptcy. If collectors are claiming you owe more than you think you should, be sure to send them a letter disputing the debt and asking for proof of the outstanding balance.
It's also important to know the statute of limitations for the collection of debt. This varies by state, but is generally between three and six years. If the statute of limitations has expired, collectors can no longer take any legal action against you to try to collect so technically, you don't have to pay back the debt anymore.
If the statute of limitations has expired, it's important that you don't accidentally take any actions that would revive your obligations to pay back the debt. Don't sign any paperwork saying you owe it or make an agreement to pay it or that could reset the clock.
Step 3: Draft your own repayment plan
Once you have an idea of how much you owe, figure out what you can afford to pay and create your own proposal for a repayment plan before you call the collection agency. That way, you can open the negotiations about how to pay off debt on your terms.
Many collectors are more willing to settle debt if you can pay a lump sum amount. With this type of debt settlement agreement, you agree to pay less than the total you owe in one lump sum and the remaining balance is forgiven. A debt settlement can affect your credit, unlike debt consolidation, but you may be able to negotiate with the collector to report the debt as paid rather than as settled as part of your repayment agreement.
If you don't have a big chunk of change to make a lump sum payment towards your debt, determine a reasonable monthly payment so you can propose a payment plan that works for your budget. By figuring out what you can afford before dealing with the collector, you won't end up agreeing to a proposal by the collector that requires you to overextend yourself.
Step 4: Take action
Armed with information about what you owe and what your options are for making a payment plan, it's time to take action and reach out to the collections agency to try to work things out.
How to set up a payment plan with a collection agency
When you're ready, get on the phone with the collections agency to discuss your options for resolving your unpaid debt.
You should find out if the person who answers the phone has the authority to negotiate with you or if you need to talk with a manager. Once you're on the phone with the right person, put forth your proposed repayment plan.
Remember, the collector probably bought this debt for pennies on the dollar so doesn't expect to be paid back the full amount. This means you have a lot of leverage when negotiating a payment agreement. While the collector will likely try to convince you to up your offer and provide them with more money than you're proposing to pay, you don't have to give in to their demands.
The dos and don'ts of paying a collection agency
While negotiating your payment plan is the hardest part of dealing with a debt collector, coming to an agreement is just the first step. You also need to actually make your payments — either over time or in a lump sum.
Before you pay, it's important to make sure you know the do's and don'ts so you can protect yourself.
- Get the agreement in writing: Don't make a single payment until you have a written agreement with the collector detailing the repayment plan you've decided upon.
- Pay with a certified check or money order so you have proof of payments: You want to make sure you can show exactly when you made payments and what amount you paid.
- Explore the tax consequences: In some cases, forgiven debt is treated as income by the IRS. Find out if your repayment plan has tax implications so you can be prepared if your tax bill goes up.
- Track your payments: Make sure collectors are properly applying your payments to reduce your debt balance.
And you should be certain to avoid:
- Giving the collector access to your bank account: This could lead to the collector taking out more money than agreed to.
- Paying any debt that's past the statute of limitations: Doing so could revive your obligation to pay back debt that would otherwise be uncollectible
What to do once your debt is paid off
After you've successfully paid the debt collector, get a written confirmation that the debt has been satisfied. You don't want another effort to collect the same debt to be made down the line.
Also, check your credit report to make sure the debt is reported as either paid or settled, depending on what you were able to negotiate with the collector.
Finally, it's a good idea to make a plan going forward for how you'll deal with borrowing so you don't end up falling behind on payments again. This could mean creating a detailed budget to ensure you never put more on your credit cards than you can afford to pay off.
The bottom line on setting up a payment plan with a collections agency
Dealing with debt collectors is stressful. As difficult as it is to face the problem head-on, you'll be much better off if you're proactive in learning about your rights and proposing a repayment plan you can live with.
Your debt problem isn't just going to disappear, but in most cases, you can resolve it by creating an affordable payment plan and making sure that you get the agreement in writing before you pay.