Falling behind on credit card payments can be a tough issue to deal with, but it becomes even more challenging when your debt is sent to collections. When that happens, the friendly reminders from your card issuer are replaced with persistent calls and letters from third-party collectors. This can be a stressful experience, but it’s important to remember that there are ways to regain control of the situation. Educating yourself about the process and your rights can help empower you to make informed decisions.

Credit card debt is considered “in collections” when your original creditor has either sold the debt to a collections agency or hired one to recover the unpaid balance. This usually happens after 90 to 180 days of missed payments. By this point, the creditor has decided that recovering the debt internally isn’t feasible and has turned it over to a third party to minimize their losses. While this escalation may feel like the end of the process, it’s actually a pivotal moment when you can take steps to address the problem.

If your credit card debt goes to collections, it’s critical to approach the situation with clarity and strategy. Knowing what to expect, understanding your rights and exploring your options can make a significant difference. 

Learn how to get rid of your high-rate credit card debt today.

What to know if your credit card debt goes to collections

Below are three crucial things you need to know if your credit card debt goes to collections.

Ignoring the debt can have serious consequences

One of the worst things you can do when your credit card debt goes to collections is to ignore it. While it’s natural to want to avoid the stress, inaction can lead to significant consequences. If the collection agency cannot reach an agreement with you, they may sue you for the unpaid debt. If they win the lawsuit, they could obtain a judgment against you, which might lead to wage garnishment, bank account levies or liens on your property.

Ignoring the debt can also hurt your credit score. A collections account on your credit report can remain for up to seven years from the date of the first missed payment, significantly impacting your ability to obtain credit in the future. While paying off the debt won’t remove the account from your report, it will show it as “paid,” which is viewed more favorably by lenders. Taking steps to address the debt, even if it’s just a small payment plan, can help mitigate the long-term damage to your financial health.

Find out how working with a debt relief company could benefit you now.

You have legal rights

The Fair Debt Collection Practices Act (FDCPA) is a federal law designed to protect consumers from abusive, unfair or deceptive practices by debt collectors. Understanding your rights under this law is essential when dealing with collection agencies. For example, debt collectors are prohibited from calling you before 8 a.m. or after 9 p.m., using threatening language or contacting you at work if you’ve told them not to. Additionally, they are required to provide written validation of the debt within five days of contacting you.

If a debt collector violates your rights, you have the power to report them to the Consumer Financial Protection Bureau (CFPB) or your state’s attorney general’s office. Familiarizing yourself with these protections can prevent collectors from taking advantage of you and ensure that you’re treated fairly throughout the process. It’s also a good idea to document all communications with the debt collector, including the date, time and content of each interaction, as this can be useful if you need to dispute their actions.

You can negotiate with collectors

When your debt goes to collections, it doesn’t mean you’ve lost all control. In fact, collection agencies often buy debt for a fraction of its original value, which means they may be willing to accept less than the full amount owed. This opens the door for negotiation. Depending on your financial situation, you might be able to settle the debt for a lump sum payment that is less than the total amount owed or negotiate a payment plan that works for your budget.

Negotiating with your creditors can be done on your own or with the help of a debt relief company that specializes in working with creditors to reduce your balance. Many people opt for the latter, as working with a debt relief company means getting access to experts who are experienced in these types of negotiations, which is a large part of why, on average, working with a debt relief agency can result in paying 30% to 50% less than your initial balance. 

Before engaging in negotiations, though, it’s important to assess your finances and determine what you can realistically afford to pay. You should also be sure to get any agreement in writing before making a payment, as this ensures the collector honors the terms. 

The bottom line

Dealing with credit card debt in collections can be a daunting experience, but knowledge is your best ally. By understanding your rights, being proactive about negotiations and avoiding the temptation to ignore the situation, you can take control and work toward resolving the debt. While it may take time and effort, each step you take brings you closer to financial stability. Remember, this may be a challenging chapter, but it doesn’t define your financial future. With determination and the right approach, you can navigate this situation and rebuild your financial foundation.