It started off with some late payments, then some forgotten payments, and then the phone calls, the letters, and the realization that your debt has gone to a collections agency. Dun, Dun, Dun! But what exactly does that mean?
When you owe money to a creditor for goods or a service you will normally make payments to the creditor based on a pre-arranged billing agreement. If you default on (stop paying) your bills the creditor will usually try to contact you to remind you to pay your bills on their own. However if a certain amount of time passes or it just seems like they will not be able to collect your debt they will call in a collections agency.
A creditor can either assign your debt to the collections agency or sell your debt to them. If the collections agency is assigned the debt then the creditor still owns your debt and has hired someone to persuade you to pay. If they sell your debt then they pass ownership of your debt to the collections agency, usually for pennies on the dollar.
If you do not already know the name of the collections agency that your debt was sold or assigned to you can find this out by asking your original creditor or checking your credit report for active collections accounts.
Once you find your collections company you should contact them right away to find out any information they have about your debt. Keep notes on all of your communications with your agent and request copies of your correspondence for future reference.
Reduce your debt
If your debt was sold to an agency then you will most likely be able to lower your payments significantly since the company bought your debt for a much lower amount and can still make a profit even if they reduce the amount you have to pay in total.
You may also be able to receive a lower balance from an agency, who is assigned your debt, but it is less likely and if you do get a reduction it will most likely not be a very large one. It can never hurt to ask though.
Work out a payment plan
Now that you have reduced the total balance that you are required to pay, you can work out a payment plan. If your collections agency has the capability to automatically process your payments on the same day as your pay day that would be a great option for your payment plan. This way you know that your payments will be made and you know you will have enough money to cover each payment.
Collections in error?
Do you have a collections account for debt that you have already paid or has your debt been sent to multiple collections agencies? You can dispute these errors with the credit bureaus that are showing the incorrect information on your report.