What should I know if I have debts in collection?

If you have debt collectors contacting you, don’t panic.

You have rights and options. Here’s what you need to know.

What it mean to have a debt in collections

Your creditor may hire a debt collector if you’re more than 120-180 days behind on your debt.

Credit card debt, mortgages, auto loans and student loans can all be passed on to collections.

But before you rush to make any payments, make sure the debt, and the debt collector, are legit. Watch out for these signs that you may be dealing with a scammer, warns the Consumer Financial Protection Bureau.

• They withhold information.
• They pressure you to pay by money transfer or a prepaid card.
• They threaten you.
• They ask for a lot of personal information.
• They call at strange times.

If you’re worried that you’re dealing with a scammer, ask for a company name and contact number. Then verify the information with your original creditor.

How will a debt in collections affect my credit?

We’re not going to sugar coat it: The longer your payment is past due, the more it can hurt your credit scores.

And a debt in collections hurts because it means your creditor’s written off the debt. So if you can, get current before an account enters collections.

The number of debts you have in collections also matters. If you’ve had one debt in collections it may be an easier to get approved for credit than someone with multiple debt collections.

But, if you’re dealing with collections know that the impact on your credit scores will diminish over time and will eventually disappear.

What are my debt collection rights?

Federal law limits what a debt collector can say and do. The law requires a debt collector to send you a written notice within five days of initially contacting you with:

• The amount of your debt
• The collector’s name
• Steps to appeal

If you don’t think the debt is legitimate, you can dispute it within 30 days to the debt collector or with the company reporting the debt. If you dispute a debt, the collector must send written verification, such as a copy of a bill, before contacting you again to collect payment.

Here are a few more of your debt collection rights:

• Debt collectors can only contact you during certain hours and can’t contact you at work if your employer prohibits personal calls.
• Debt collectors can’t threaten you with physical violence, use obscene language or lie to you.
• If you’re being represented by an attorney and the debt collector knows, they must communicate with your attorney.

Should I pay off collections debt?

That largely depend on your financial situation.

Credit-scoring factors to consider

Even if you pay off your debt, it may stay on your credit reports as a paid collection for up to seven years.

And if you have multiple debt collections on your credit report, paying off a single collections account may not significantly raise your credit scores.

Is the debt time-barred?

Understand the age of your debt and whether you’re still liable to pay it. Even if collectors threaten you, once the statute of limitations expires they can’t sue you to collect, unless the debt is revived.

What’s next?

Some debt collectors may be willing to negotiate a debt settlement or payment plan. But, you may want to try negotiating on your own first for the following reasons:

• Many debt settlement companies charge expensive fees.
• Your debt collector may refuse to work with the debt settlement company.

If you decide to work with a debt settlement company, never agree to pay upfront fees before a debt has been settled.

As an alternative to a debt settlement agency, you may want to set up a free consultation with a bankruptcy attorney to understand your legal options. Or, you may want to contact a certified credit counselor who could help you create a personalized debt management plan.