Filtering through collection notices and fielding phone calls made from toll-free numbers probably isn't your ideal of newly wedded bliss. Once a debt goes to collections, persistent creditors seem to be everywhere but at your front door. Generally speaking, if you don't pay a debt, it's charged off by the original lender after six months for accounting purposes and either dispatched to the lender's collections department or sold to a third-party collection agency. Paying off a debt in collections gets creditors off your back and makes a more peaceful home.
Prioritize your spending. Before you and your spouse agree to pay off a debt in collections, you should both be sure that you can comfortably afford it without making major sacrifices. The most pressing expenses come first -- paying your rent or mortgage, utility bills, car loan and income taxes get first priority. Don't press yourself or your spouse to pay off an old debt if this means you won't be able to make ends meet.
Have cash on hand. The ability to make a single lump-sum payment is your best bartering tool, as collection agencies want to get you off their books as soon as possible. Additionally, your creditors may be willing to settle for far less than what you owe if you agree to pay a specified amount, rather than if you suggest making small monthly payments.
Negotiate with the collection agency, but keep in mind that there can be consequences to tossing out a low-ball figure. If your creditor agrees to forgive a part of your debt that's $600 or more, you must claim the amount of the forgiven debt as income when you file your taxes at the end of the year. If you can't afford to make a respectable offer, it may be best to hold off on paying the debt until you can.
Get it in writing. Once you and the creditor have concurred on a lump-sum payment, ask the creditor to send you a written agreement before you even think about writing a check. Drive a hard bargain: Ask the creditor or collections agency to report the debt as "paid in full" to the three credit bureaus, rather than an account that's "settled." This may or may not help your credit score -- but it won't hurt it.
Keep an eye on your credit reports. When it comes to paying off debts that have gone to collections, financial experts agree that it's difficult to know how it will affect your credit scores, as much depends on the age of the old debt and the credit bureau's scoring methods. However, if you and the creditor or collection agency have reached an agreement, and you've made good on your end of the bargain, you'll want to make sure this is reflected in your all your records. By law, you can request a copy of your credit reports from all three major credit bureaus – Experian, TransUnion and Equifax – once a year.
- Each state has its own statute of limitations with respect to debt collection. These laws give creditors a specific number of years during which they can file suit against you in court and attempt to collect the debt. If collection calls for decades-old debt are still haunting you, it's best to seek legal advice.
- Before you pick up the phone to negotiate with your creditors, keep in mind that in some states, this "tolls" the statute of limitations, giving your creditors the same number of years to file suit against you as though the debt were brand new.
Lisa Sefcik has been writing professionally since 1987. Her subject matter includes pet care, travel, consumer reviews, classical music and entertainment. She's worked as a policy analyst, news reporter and freelance writer/columnist for Cox Publications and numerous national print publications. Sefcik holds a paralegal certification as well as degrees in journalism and piano performance from the University of Texas at Austin.