Very few things are as stress inducing as continuous call from debt collectors. Am I right?
I know I can’t be the only one with a PRO Level Card when it come to dodging them. #carmensandiego
But there comes a time when you must face the music and get your financial life together. And that may mean you have to pay off debt collections.
And I know that if you’ve fallen on hard times financially and are working to get yourself out of the hole, dealing with collections agencies can be intimidating.
Nonetheless, the sooner you get it done, the better your life will be.
So take a deep breath, imagine how great you’ll feel once you’re finally debt free, and let’s dive in.
Here’s what we’re covering today: 3 things to know before you start your debt collections strategy, how paying off collections accounts affect your credit score, whether you should hire a credit repair company, debt pay off strategies, how to deal with debt collectors, and resources to help you through the whole process.
Disclaimer: I’m not a financial expert. I’m just a girl who found myself in an awful financial situation, did a ton of research, got burned, learned some lessons, and am now sharing what I’ve learned along the way.
Aight, let’s do this.
These 5 things will make it easier to pay off debt collections
- Take it in stride. Don’t let anyone pressure you into an arrangement that you know won’t work for you. If you’re dealing with anyone trying to use fear or intimidation tactics, stand your ground.
- Know your rights. Ever heard of The Fair Debt Collection Practices Act (FDCPA)? They’re basically the laws that outline how debt collectors must treat you. When you know your rights, you can use them to protect you.
- Have a strategy. Putting together a game plan to pay off your debt will make this process so much easier and less intimidating. If you need help with that, read this.
Related post: How we increased our credit score 150 points in 1 week
Is hiring a credit repair company right for you?
After doing a ton of research on this, most of the advice I got was that hiring a credit repair company isn’t necessary. With some research and time, you can do the same thing yourself for free.
I know many people have gotten burned by credit repair companies that have took their money, but didn’t deliver results.
Here’s my conclusion: Hiring a credit repair agency isn’t necessary. BUT if you feel too overwhelmed or busy to do it yourself, you can certainly hire one.
If you hire a credit repair company do this: Find a credit repair agency that doesn’t charge you UNLESS they’re able to get items removed from your credit report.
Some credit repair companies charge you without offering you any guarantees. But, with some research you’ll find companies that charge only for results. This is definitely a safer bet.
Will paying off debt collections make your credit score increase?
Nah girl, it won’t. I learned this one the hard way. After paying off 2 accounts in collections in full, my credit score went up a whopping 1 point. ?
Learn from my mistake sis. To see an increase in your credit score, get collections accounts completely removed from your credit report.
Here’s why it doesn’t work: Your credit score measures how likely you are to fall behind on your payments – having an account on collections means that you defaulted on your financial obligation. Once it’s been sent to collections and added to your credit report, it’s a black mark. Paying it after the fact doesn’t erase that mark.
So should you still pay that debt? Well, it depends…
What you need to know BEFORE you pay off debt collections
Before you pay a single red cent, you need to verify who owns your debt. There have been horror stories of people making payments on a debt to a company, only to find out that the company isn’t legit. To make matters worse, they still had to make payments to the company that actually owned their debt. Needless to say, that’s horrifying.
So make sure you start by validating your debt. Research the company on the Better Business Bureau website and make sure they’re legit.
- Step #4 of this article gives you a sample validation letter (plus other tips on dealing with collections calls)
Your #1 Goal should be to get collections accounts removed from your credit report. The 2 primary ways you can do that.
The ideal solution is to negotiate with a credit collector for a “Pay for Delete.” Simply put, that means you commit to paying the debt if they remove it from your credit report. If you get a creditor to agree to that, make sure you get that agreement in writing.
Dispute Collections with the Credit Bureaus
Debt collectors have to have their information correct and if they don’t they’ll have to remove the debt from your credit report.
When you dispute a debt, the credit bureau will contact the creditor and ask them to verify your debt. If they don’t respond in 30 days, they’re legally required to remove the debt from your credit report. BTW, this is often the strategy credit repair agencies use to help their clients.
Strategies to pay off debt that Actually Work
Collections accounts have a statute of limitation (length of time varies by state). In other words, after a certain period of time it has to be removed from your credit report. The older the collections account is, the less impactful it is to your credit score.
If you have a collections account that’s nearing its expiration date, making a payment arrangement, making a partial payment, or accepting a settlement offer, can hurt you. It can reset the statute of limitation which basically means the clock starts all over again for that debt.
So the first thing you want to do is check the age and the statute of limitations for your debt.
If your debt is not expiring soon, you may find yourself in a situation where you have to make payment arrangements. If you’re juggling multiple debts, there are 2 ways you can approach this.
The snowball method is my personal favorite and it’s the one hubby and I have been using.
Here’s how it works: Pay off your debts in order from smallest to largest. As you finish paying off a small debt, you take that same amount and use it to pay off your next debt. As you continue to pay off debts, the amount of money you have available to pay off debt continues to increase. It gets larger and builds momentum, the same way a snowball rolling down a snowy hill would.
I haven’t used the avalanche method yet, but it’s another great option. It’s a similar method, except you pay off debts with the highest interest rate first. Overtime you’ll save money and pay off your debt more quickly by knocking out the debts that will cost you the most in the long run.
Resources that will help you manage your credit
Lastly, here are some of the resources you can use to help you get financially fit, manage your credit, and pay off your debt.
- annualcreditreport.com – Use this website to get a free credit report 1x a year. I recommend checking your credit report 3x a year (every 4 months request your credit report from a different credit bureau)
- Credit Karma – I use my credit karma app weekly to keep track of what’s happening with my credit. See your credit score at any time and get tips on how to improve your credit score.
- Mint.com – Manage your monthly spending, keep track of your bills, and financial goals. If you’re not good at manually managing your finances, this app will be a life saver.
- Nerd Wallet – One of my favorite resources to research all things “finance” related. Literally, it’s one of the sites I spend most of my time on.
What about you?
I hope this helps queen! How are you doing in your financial freedom journey – are you struggling to pay off debt collections? Share your experiences in the comments – I’d love to hear about them. Also, if you have any other resources you love feel free to drop them in the comments.
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w/ light and love,
Matthew 5:14 – You are the light of the world. And like a city on a hill that cannot be hidden.