What happens if your debt is sent for collection?

Woman's hand calculating her expenses with unpaid financial bills, credit cards on the desk

Siriporn Kaenseeya / EyeEm


If you have debts in collection, you are not alone. As of August 2021, 64 million Americans had collections on their credit report — and that was an improvement from previous years, according to the nonprofit Urban Institute research group.

Fortunately, you – and the other millions of Americans in the same boat – have options. Here’s what to know about debts in collection and how to move forward.

What does it mean when debt goes to collections?

Having debts in collections means several things. First, it indicates that you are behind on payments, probably at least 120 days late, per FICO. It also means that your creditor (the credit card company, lender, etc. where your account is from) has sent your account to a collection agency.

Collection agencies are third-party companies responsible for collecting overdue debts. They will call you, send you letters, and try to get you to pay off the debt you owe. If they succeed, they will take a share of the amount recovered.

What are the consequences of collections?

Having debts in collection can have a financial impact on you. They can:

  • Hurt your credit score: Your payment history makes up 35% of your score, so having an account in collections can have a big impact and for a long time too. Collections can remain on your credit report for up to seven years, FICO notes.
  • Make it difficult to get loans, credit cards or other financial products: If you apply for a new loan or credit card, the lender or credit card company will review your credit report to assess your payment habits. If there is a collections account there, it might make them hesitant to approve you. (It shows that you might not pay your account on time).
  • You could be sued: If you fail to settle your account in collections, the debt collector could take legal action against you. If they win, they could garnish your wages or take money directly from your bank account to pay off your debts.

If a collection agency contacts you, you have rights. Under the Fair Debt Collection Practices Act, debt collectors cannot contact you before 8 a.m. or after 9 p.m., or call you at work if your employer does not allow it. Also, if you ask the collector to stop contacting you — or to contact you only by certain methods — they must comply. (Keep in mind that this doesn’t stop the collection agency from suing you, so consult an attorney before stopping contact.)

Reimburse collection debts

If you have the money, it might be a good idea to pay off collection debts, especially if you’re still within your state’s statute of limitations (meaning you could be sued).

That might not help your credit score, yet. Some credit scoring models completely ignore accounts in collections if they have a zero balance. Under these, paying off your debt would increase your score. Other models, however, continue to count your collection action until it is removed from your report (after seven years). With these models, paying off your debt would have little or no impact on your score.

If you choose to repay your debt by collection, first confirm that the debt is yours and that the amount is correct. You can also try to negotiate the amount down or ask for a payment plan, which would allow you to spread the costs over time. Either way, get the agreement in writing before you pay anything.

Other Ways to Handle Debts in Collections

There are also other ways to deal with debts in collections. You can always dispute the debt. If you don’t think the debt belongs to you or if you think the amount is wrong, send the collection agency a letter disputing the charges. The Consumer Financial Protection Bureau has sample letters you can use to get started.

You can also contact a credit counselor, who can help you develop a plan for paying off your debts. They may also be able to help with budgeting and other personal financial needs.

Beware of using a debt relief or settlement company. These often come with fees, and sometimes their tactics can actually hurt your credit score.

How to Avoid Debts in Collections

Once you’ve managed your account in Collections, take steps to make sure it doesn’t happen again.

Build a family budget and set up automatic payments for all possible accounts. You can also think of consolidate your debtswhich bundles them all into one loan, making it easy to remember (and pay off) each month.