Check Your Credit Reports
The first stop in determining what debts you owe should be to get your credit reports from the three major credit bureaus: Experian, TransUnion and Equifax.
Creditors generally report debt accounts to one or more credit bureau, which then add it to the they maintain. Account types you’ll be able to find on your credit reports include credit cards, personal loans, mortgages and more. Your credit report lists the amount owed on every account, along with its status and payment history, and contact information for the creditor handling the debt.
Under federal law, you can obtain one free copy of your credit report every 12 months by visiting AnnualCreditReport.com. You also can see your free Experian credit report at any time. Through April 20, 2022, the three bureaus are offering all U.S. consumers free weekly credit reports through AnnualCreditReport.com.
Know Your Rights: Learn What Collectors Canand Can’tdo
The federal Fair Debt Collection Practices Act limits what collectors can and can’t do. For instance, this law prohibits debt collectors from using obscene language or threatening you with violence if you don’t pay. Some states have similar laws that provide even more protections than federal law.
If a debt collector violates your rights under the FDCPA or state law, you:
- can use the debt collector’s violations to your benefit when negotiating a settlement
- sue the collector for damages, or
- file a complaint with the CFPB, which monitors debt collectors with more than $10 million in annual receipts, or with the FTC.
The FDCPA also gives you the right to tell a debt collector to stop contacting you.
Negotiating A Settlement With A Debt Collector
If you have some cash on hand, you may consider negotiating with the collector. You might offer a lump-sum settlement or try to work out a payment plan. If the collector violated the FDCPA, you can use the violation as leverage in your negotiations.
Exactly how much leverage you’ll get by threatening the collector with an FDCPA lawsuit depends on the strength of your case. If you have strong evidencesay you have records of abusive phone calls, harassing texts, and offensive voicemailsyou’ll probably have considerable clout in debt settlement negotiations.
Tax Consequences of Settling a Debt for Less Than You Owe
The IRS generally considers canceled debt of $600 or more as taxable, and settling debts for less than what’s owed can increase your tax liability depending on your tax bracket and the canceled amount. Consult a tax professional for more information.
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How To Fight Back When Contacted By A Debt Collector For A Medical Bill
Here’s what one consumer and a CR reporter learned when dealing with a collection agency
When a collection agency contacted Lauren MacNeill earlier this summer saying she owed $71 to an urgent care center near her Westport, Conn., home, she was tempted to just pay the bill to get the company off her back. But one thing stopped her: Id never been to that doctors office, she says.
So instead she contacted Consumer Reports, since we sometimes help people in predicaments like hers, and I was put on the case. Six weeksand a flurry of phone calls, emails, and even certified letters laterMacNeill and I found that her case was a textbook example of why you should almost always push pause when contacted by a debt collector for a medical bill.
Ultimately, we were able to trace the problem back to a bill MacNeill had received almost a year earlier from an urgent care center, AFC Urgent Care, for her sons COVID-19 test. That bill had surprised her. For one thing, the test had been at a local church, not AFC Urgent Care. For another, the bill said her insurer, Anthem, had denied the claim because her son was not covered by her policyeven though he was on her plan. MacNeill had immediately called the urgent care center and left a message informing them of the error. After not hearing back, she had assumed the matter was settled.
Should You Pay A Collection Agency
Here’s what to do after confirming the legitimate debt collection agency that you owe your debt to.
- Clear the Debt. Clearing your debt may not affect your current credit score, but your credit report will reflect that the collection account is paid off. However, the information will remain on your credit report for at least seven years after you’ve cleared the debt.
- Negotiate With the Collection Agency. Not everyone can clear their debt all at once. For this reason, if you can’t clear the debt in its entirety, you can negotiate with the collection agency to allow you to pay it off in installments. Alternatively, you can negotiate to pay a certain amount in exchange for forgiving what remains.
Note that the collection agency isn’t obliged to make a deal with you, and they can reject any offer that doesn’t suit their needs. But if you do negotiate a deal with the creditor, ensure it’s in writing to prevent them from claiming that you still owe them money.
- Dispute the Debt. If you receive a debt collection notice and you’re sure the debt isn’t yours, you can dispute it in writing within 30 days of receiving the notice. In that case, the creditors must cease contacting you unless they prove that the debt belongs to you.
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Do This If Your Debt Is Already In Collections
To start digging out of debt that’s already in collections, “get some help quickly,” says Eweka. Contact the National Foundation for Credit Counseling and ask to work with a nonprofit credit counselor.
With the counselor’s help, call the collections agency and arrange a payment plan so the delinquent marks roll off your credit report as quickly as possible. It can take up to seven years for your past-due history to disappear completely off your report, but as you work toward settling outstanding debts your score will consistently increase with time.
Even if your debt is already in collections, debt collectors are not allowed to lie to you, threaten you, use obscene language or harass you by phone. However, a new report from Pew Charitable Trust found that increasingly, collections companies are taking debt settlements to civil court. The study shows that, from 1993 to 2013, the number of debt collection lawsuits steadily doubled from at least 1.7 million cases to 4 million cases nationwide.
And although laws vary state by state, collections agencies are generally not allowed to use unfair practices like adding fees and interest on top of what you owe , nor can they threaten to take your property through illegal means. However, they may be able to leverage the legal system in surprising ways, like suing you or freezing your assets.
How To Rebuild Your Credit Score
Once debt in collections has been fully resolved, consumers should focus on rebuilding their credit score. This process can take months, if not years, depending on how hard a score was hit due to bills in collections. But with effort and patience, a score will eventually recover.
Consumers rebuilding their credit after an account is sent to collections should try the following strategies:
- Pay all of your bills on time. Payment history is the largest contributing factor to your FICO score. Whether or not you pay your bills on time comprises 35% of your overall score even more than your amounts owed. While rebuilding credit, its important to make every single payment on time. Many financial products offer autopay features, which debit your bank account each month on the bill due date take advantage of this option to help keep your payments on track.
- Keep credit card balances low. Now that youre debt free, or have manageable monthly payments toward debt, it can be tempting to reach for and start the cycle of debt over. Instead, pay off balances each month in full, if possible. Not only will it help strengthen your credit score, but it will help you save big in interest. According to Experian, the average credit card interest rate, excluding 0% introductory rates, is 13.80% on a $1,000 balance, that can equal $138 in interest charges alone.
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Medical Collections Dont Always Appear On Credit Reports At All
In general, medical debt appears on your credit report in more limited circumstances than other types of debt due to several recent changes made by the credit bureaus: 5
- Year-long grace period: As mentioned, medical debts have a grace period of 1 year , meaning they dont show up immediately on your credit report. This gives you time to work out payment arrangements with your insurance company and healthcare provider before the debts start affecting your score.
- Exclusion of medical bills under $500: From the beginning of 2023 onwards, medical collections for debts under $500 will no longer be included on credit reports.
Dispute The Debt If Its Inaccurate
Carefully check the medical collection account on your credit reports and any information that your debt collectors send you.
If you notice any errors pertaining to the collection account, such as mistakes in your personal information, the amount you owe, or your billing dates, use this sample letter for disputing medical collections to dispute the account with both the debt collection agency and the credit bureaus reporting the error.
If it turns out that the debt is illegitimate, this will probably be all youll have to doyou dont need to pay debts that you dont actually owe. Make sure to keep following up with the credit bureau and collection agency to ensure that they do remove the debt from your credit report, as theyre obligated to do.
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How To Prevent Medical Bills From Appearing On Your Credit Reports
Being proactive is one of the best ways to prevent medical bills from appearing on your credit reports. By reviewing each medical bill and working out a payment plan with the health care provider, you may avoid the collections process altogether. Consider taking the following steps recommended by the CFPB:
1. Review Every Medical Bill
If you donât understand some of the charges or you believe thereâs an error, contact the provider. Ask them to explain each part of the statement or ask for an itemized bill to check how much you were charged for each service.
2. Check Whether Health Insurance Will Pay
Ask the health care provider whether theyâve requested payment from your health insurance company. They may have mistakenly sent you a bill before running it through insurance.
3. Pay the Bill
Once you understand the charges and youâve confirmed youâre responsible for the balance, itâs best to pay the bill by the due date. Keep documentation of your payment, and make sure itâs processed.
4. Create a Payment Plan With the Provider
If you canât pay the entire medical bill at once, your medical provider might be willing to set up a payment plan or lower the amount due if you contact them before itâs turned over to a collection agency. Before agreeing to a payment plan, make sure itâs realistic for your budget. Get details of the agreement in writing, then pay the installments on time.
How To Handle Accounts In Collections
Understanding what happens when your debt goes to collections can be daunting. Remember that you must receive all the details in writing within five days of first receiving notice. Once this arrives, verify the details with your own payment history and accounts. Review the Fair Debt Collections Practice Act if youre concerned your collection agency is overstepping their bounds. Collectors are not, for example, allowed to intimidate you or call at unreasonable hours.
If all information is confirmed, you can approach the payoff in several ways. Set up a payment plan with your collection agency by determining a practical timeline with your own finances. If you can afford $50 a month for the next year, speak to your agency about this option and request any agreement in writing before proceeding. Avoid giving your bank account number or setting up automatic debits with the collection agency and clearly state how you plan to pay off the amount.
Dispute any inconsistencies within 30 days of collections notification. Collections does not have the right to list the debt on your credit report during the investigation. The Consumer Financial Protection Bureau has prepared sample letters for disputing or requesting clarification from a collection agency.
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What To Know When Your Debt Goes To Collection
Once you know how collection agencies operate, you can appropriately respond when they contact you. You might, for instance, decide to try to settle the debt for less than you owe or work out a payment plan. Before you negotiate, however, make sure you consider all options, including filing for bankruptcy . You might also use the law to force the collector to stop contacting you.
Here’s some basic information to keep in mind when dealing with a collector.
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Finding Your Debt Collectors
The easiest way to find out if you have anything in collections is to check your credit report. Obtaining your reports is a three-step process:
- Visit the official credit report site.
- Provide identifying information.
- Select which credit bureau report youd like.
Section 612 of the Fair Credit Reporting Act mandates that each of the three major credit bureaus provide you with a free copy of your credit report once every 12 months. To get started, visit www.annualcreditreport.com, the only website authorized by federal law to provide free credit reports. Then, select the option, Request your free credit reports. Next, complete the form by providing a variety of identifying information, including your name, date of birth, social security number, and address history for the last two years. If you are outside of the U.S., you must provide your permanent U.S. address or the credit bureaus will not be able to locate your information.
Then, select which of the three credit bureaus you would like to have generate your report. Dont assume that each report has the same information. Some creditors report credit and debt information to only one bureau others report to all three. Whether you should use up all three of your free reports at one time is a strategic decision. Ordering all three will give you a complete picture of the debts recorded as in collection. Ordering one every four months will allow you to keep track of your credit information over the course of a year.
Using Credit Cards To Pay Debt
A medical credit card may be worth looking into. These are credit cards that can be used to pay medical bills, including dentists and eye doctors.
The advantage: A medical credit card often will defer interest. Meaning if you pay the debt in an agreed-on timeframe, no interest will be charged. Typically, that timeframe could be from 1224 months. The catch: If you dont make the payments on time, youd have to pay the interest retroactive to when you first made a payment.
A medical credit card is a good idea if you can get deferred interest AND you can you make the payments in the time allotted. If not, the medical credit card can be a problem, just like other credit cards.
Using a credit card for medical debt is the last resort of last resorts.
Only use credit cards to consolidate medical debt if you can pay the credit card bills promptly. If you cant, first discuss whether the medical provider might offer an interest-free payment plan, which would be more manageable than a credit card debt that accrues interest.
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How To Pay Your Debts After Finding Them
So, once you’ve pinpointed what debts you owe, what’s next? It’s time to pay them off. Here are four steps you can take to make that happen:
