Sense & Centsibility Blog

How to Pay Collection Debt

older woman

Like so many during the Great Recession, you lost your job and had to prioritize expenses. Maybe you had to break a cable contract so you could manage the house payment, or you had to defer paying medical bills until things improved. It wasn’t easy not paying all your bills because you always had, but it was the right thing to do.

You are working again. Maybe earning less than at the job you lost, still things are looking up. You received a nice tax refund that you prudently hung on to until you had a complete plan for it. Part of your plan is to pay off some of those bills that have turned into collection accounts. But, how do you do it? Where do you start?

1. Start with your Credit Report

Get your free annual credit reports from all three major credit bureaus from the Annual Credit Report Request Service. Don’t be tempted by the cheap knock-offs you see online— the reports from this service will provide the most detailed information.

Need help reading and understanding your credit report? Give us a call today at 888.577.2227 to set up a free credit report review appointment.

2.Get Organized

Gather the bills and collection notices you threw into a box or paper bag. Compare them to the reported collections on your credit reports. I find making a chart or spreadsheet helps to organize the pile. Leave space to put notes from phone conversations or action taken.

Note: if the debt is a number of years old, know the statute of limitations in your state by contacting your State Attorney General’s office. Understand your consumer rights! Read Time-Barred Debts, available from the Federal Trade Commission by calling 877-382-4357, or go online.

3. Start Making Calls

Call the most recent collector (debts change hands frequently and you want to be sure to send payment to the right place!)  Take detailed notes of the call. When you speak with them, ask if they still have the debt.  If not, where is it now?

If they still own the debt ask the following:

  1. What is the current balance?
  2. Request a written statement if you do not have one from the collector.   For some unknown reason, many collectors refuse to send them out, so be prepared to insist or threaten to file a complaint with your state’s Attorney General’s office.
  3. Ask if they will delete the account completely from your credit report if you pay in full.  Request their agreement in writing.
  4. Where do you send payment?  (Avoid giving out your bank account information.  Be firm about mailing the payment.)
  5. Send the payment by certified mail with a request for a receipt of payment.
  6. Remember to take notes of who you spoke with, when you speak and details of the conversation.
  7. When you have received your receipt, write to the reporting credit bureaus to update your credit report as the debt has been paid.  This action often results in the item being removed and not just noted as “paid.”

What if a collection debt is too large to pay off with a single payment?  You have two options:

4. Set up a payment plan

First, review your budget to determine an affordable payment. Meeting with a financial counselor is a smart idea! Send a letter to the address on the most recent notice by certified mail with your payment plan.

Here is an example of a sample letter:


Creditor / Debt Collector Company Name

Creditor / Debt Collector Company Address


Dear Creditor / Debt Collector:

I am writing to you about my account #__________on which I owe $_______.  I intend to pay the whole debt but cannot pay it all at this time. I can pay $________ each month and enclosed a check for this amount. You may contact me at the address below. Thank you for your understanding.



Your Name and Address and Account Number

Remember to keep copies of all letters and payments and continue to open your mail to know if the debt has changed hands or if you are being sued or threatened with garnishment.  Seek legal advice, and attend a court date with your payment evidence.

5. Negotiate a Settlement Amount

Always get an agreement in writing stating that the entire debt is settled with the agreed upon amount. Send payment by the date specified, get a receipt of payment.  A settled debt is still considered a negative on your credit report. The value is that it is over and done. You can move on to taking other steps to rebuild your credit without fear of more serious collection efforts.

Paying your collection debts can have a positive impact on your credit score.  More importantly, though, you will have the personal satisfaction of taking care of things and the relief of checking those collection debts off your recession recovery list!

Want to learn more? Give us a call at 888.577.2227 or visit our website to get started!

Author Mary Ellen Kaluza is a Certified Financial Counselor at LSS Financial Counseling.