How to Pay Off a Debt that Has Gone to Collections

A collection account can cost you interest and fees and damage your credit. Paying off the collection with a personal loan may save you all three.
Written by Gina Pogol
Financial Expert
Managing Editor
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If a creditor turns over a balance you owe to a collection agency, your life could get complicated and expensive.

But there are a few options to pursue.

Paying a collection account with a personal loan, for example, is one option that might help you save your credit rating and your money.

How Debts Become Collection Accounts

How your debt became a collection account matters. Here are typical paths:

  • You have an unpaid medical bill that goes to collection, sometimes without your knowledge.
  • You have an unsecured account, like a credit card, that you stopped paying. The creditor turns you over to its collections department. Alternatively, the creditor turns you over to a collection agency and pays it a percentage of the money recovered from you.
  • The collection agency purchased an old debt of yours for pennies on the dollar and tries to collect from you.

Why is the type of collection account important? Because it impacts the way you might choose to pay (or not pay) the account.

Medical Collections

Medical collections get the most lenient treatment from credit bureaus.

First, the collection agency must notify you when it receives your account. You have 180 days from that notification to pay the account before the agency can report your collection to credit bureaus.

Even better, once you pay the collection, the credit bureaus have to remove the collection from your credit report within 45 days.

Past-due Accounts

Past-due accounts can do more damage.

Collection agencies can charge you interest at the rate in your original contract or the highest rate allowed by state law. They may be able to charge additional fees. And there is no grace period for reporting your delinquency to credit bureaus.

In addition, paying the debt may not clear your credit history.

Old Debts

Old debts, whether bounced checks, charge-offs, or other balances deemed uncollectible, may be the easiest to settle. But that is because collection agencies often purchase these accounts for pennies on the dollar.

You might be able to settle a $5,000 debt for as little as $250. It depends on how old the account is and what the collector paid for it. So, should you automatically pay for it? Not necessarily.

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How to Decide Whether to Pay a Collection Account

There are several things that factor into the decision to pay a collection account. Before contacting a collector, get some answers:

How Old Is the Debt?

Every state has a statute of limitation for debt collection. If your debt is more than four years old, it’s uncollectible in many states.

In addition, older debts affect your credit score much less. You may be better off letting an old collection fade away if you can’t pay it in full.

Resurrecting a collection account with a payment or settlement freshens it on your credit report and can harm your FICO score. Note that completely repaying an old debt won’t harm your FICO score.

Has the Debt Been Reported to Credit Bureaus?

If not, you may be able to prevent it from harming your credit score by negotiating a full, scheduled, or partial payment right away.

Is the Creditor Willing to Delete the Collection from Your Credit History?

For most versions of credit-scoring models, a paid collection still hurts your FICO score.

Only if the collection is deleted completely will paying the account restore your credit in all versions of the FICO score. This is called “pay for delete” in the credit industry.

How Large Is the Debt?

Collection agencies sue people all the time. If you owe a large amount or several smaller collections that total a large amount, you could easily find yourself in court. You could end up owing court costs, interest, and the original balance – and also have a collection and a judgment on your credit history.

Is the Collection a Medical Account?

Paying a medical collection gets it deleted from your credit history.

When to Ignore a Collection Account

If a bill collector approaches you about a debt, make sure that you actually owe the money. When collectors sell the same debt over and over, things can get mixed up. The account might be uncollectible. It might not even be yours. And you could potentially harm your credit score by restarting repayment.

By law, collection accounts have to come off of your credit report in seven years. If someone is coming after you for a small, six-year-old collection, consider letting it fade.

For old collections or bills you don’t think you owe, contact the credit bureaus, not the collection agency. Make the collector prove that you owe the money before you pay.

What if the collector won’t let you pay for deletion? You may want to let it go if the balance is old and/or small.

How to Pay Collection Accounts

Assuming that you have decided to pay your collection, the best strategy depends on the nature of the account.

  • For a medical collection that’s accruing no interest, negotiate a workable payment plan with the collector. Doing this within six months may keep the collection off of your credit report altogether.
  • To stop the account from harming your credit score, try paying the collection account with a personal loan. If your collector agrees to a pay-for-delete arrangement, the paid account won’t appear on your credit report or FICO score.
  • If the account remains on your report, once it’s marked “paid in full,” the FICO 9 scoring model does not include the collection in your credit score.
  • If it’s a medical collection, paying it off removes it from your credit report and score for all FICO scoring models.
  • If the collector wants a higher payment than you can comfortably make, a personal loan with terms as long as ten years could help you lower your payments. Collection agencies generally want their money much sooner.

Personal Loan Advantages for Paying Collection Accounts

There are other ways to pay a collection account, but the personal loan has some compelling advantages:

  • Fixed interest rates and terms
    Unlike credit cards, personal loans have fixed interest rates and terms. These interest rates are about 7% lower on average than credit cards.
  • No increase to your credit utilization
    Personal loans don’t increase your credit utilization. That may protect your credit score.
  • Less exposure and expense
    While home equity loans usually offer lower interest rates, they can be expensive to set up. And unlike home equity loans, personal loans are unsecured. So, if you cannot repay them, the lender can’t foreclose on your home.

How to Negotiate with Collection Agencies

Before sending any money to a bill collector, get a written agreement. You need to know if you’ll be settling the account for less than the total balance or paying in full. Will you make a single payment or a series of payments? When are they due? Will you pay interest and/or collection fees?

Most importantly, what happens after you make the agreed-upon payment(s)? Will the collection be deleted altogether from your credit history? Will it be reported as paid in full or reported as only partially paid?

When requesting something in exchange for payment, send a letter explaining what you are willing to do, and what you’d like in return. Only when you reach a written and signed agreement should you send in the promised money.

Once you have paid according to the terms of your written agreement, check your credit reports from all three bureaus. Verify that the account is marked or deleted the way you expected. You can get your credit reports for free at, the only site administered by the federal government.


Finally, remember that collection agencies can sue you for repayment. But they cannot show up at your workplace, harass you with threats or abusive language, arrest you, pursue you for a debt you don’t owe, or call you before 8 am or after 9 pm.

About Author
Gina Pogol
Gina Freeman writes about personal finance and has been featured on MoneyRates, The Mortgage Reports, MSNMoney, Fox Business, Forbes, The Motley Fool, and other fine websites. Her background includes tax accounting with Deloitte, over 20 years in mortgage sales and underwriting, systems consulting for Experian, and several years in bankruptcy law. Gina enjoys helping consumers make confident and intelligent financial decisions.
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