Having one or several of your debts ending up in collections can torch your credit score. Furthermore, you’ll begin to suffer multiple calls and letters a week, sometimes daily from debt collectors. In some cases, debt collectors can even garnish your wages.
This can create a lot of tension in your life, especially if you don’t know how to pay off debt in collections. Most often, this happens because people struggle to make ends meet. In fact, nearly 80% of American workers live paycheck to paycheck each month.
The question is, what can you do about it? How can you get out of this vicious cycle?
Don’t worry, we’re here to help. Keep reading for our top tips on how to pay off debt.
1. Confirm the Debt Accusations
First and foremost, you need to do a little research to make sure you’re not being pursued by fraudulent debt collectors. There are scams out there targeting people just like you. The scammers claim they’re debt collectors and attempt to set up a payment plan with the borrower, seeking sensitive information such as credit card numbers, bank account information, birthdates, and more.
Check your credit records through Experian, Equifax, and TransUnion. Track down the debt that is in collections to ensure the discrepancy. Contact the original debtor to verify the collection agency that’s contacted you.
Finally, look into The Fair Debt Collection Practices Act and The Fair Credit Reporting Act to make sure you are aware of your rights where debt collection is concerned.
2. Negotiate a Repayment Plan
After you’ve verified your debt and the collection agency, learning how to pay off debt in collections means coming up with a repayment plan. There are several options here.
First, you can pay off the entire debt amount in full. If you have the cash or can obtain a loan, this is the fastest way to settle your debt and get your credit score moving in the right direction.
Alternatively, you can come up with a debt repayment plan. Just make sure you read the terms and conditions regarding monthly payments, interest, and the length of the loan.
Finally, you can negotiate a debt settlement where the debt collector reduces the total payoff amount, assuming you pay it off in one lump sum. However, this can negatively affect your credit score.
3. Get a Quick Loan
If the debt that has landed in collections isn’t terribly high, it may be wise to apply for a personal loan to amend the discrepancy. Depending on your credit history, you can get approved for up to $5,000 with a simple quick loan. However, there are several loan companies that cater to people with poor credit scores, if you find yourself in that category.
Just make sure you know the terms and conditions of the loan before signing the contract.
4. Consider Debt Consolidation
If you have multiple debts, consider applying for a debt consolidation loan. These can be especially beneficial if you are trying to figure out how to pay off debt in collections. Debt consolidation loans can be the best way to pay off credit card debt, as they usually absorb the ones with the highest interest rates or urgency.
Consolidation loans carry low-interest rates and provide manageable monthly payments. Your total debt amount will stay the same, but you’ll be paying less on interest and less on monthly payments through a single loan. Just as importantly, you won’t have to worry about debt collectors anymore.
5. Cut Back on Expenses
Learning how to pay off debt comes down to creating better financial practices. One of the most important things you can do is increase your knowledge and awareness regarding you’re spending habit. Dig into your bank and credit card statements and determine exactly where you’re money goes each month.
You will likely be shocked to see how much money you spend on unnecessary things. Now’s a good time to start cutting back on these types of expenses. Use the money you save each month to pay off your debt.
Here are some examples of where you can cut back:
- Cut out cable
- Limit yourself to one or two TV/movie streaming services
- Stop eating out at restaurants
- Stop getting commercial coffees
- Stop online shopping
- Make a grocery list before going to the store and stick to it
- Cancel unused memberships and subscriptions
- Downsize to a smaller/cheaper home
By reducing your monthly costs each month, you can expedite your debt repayment process.
6. Pick Up a Side Hustle
If reducing your expenses each month doesn’t create a significant change in your financial situation, there are more ways to learn how to pay off debt in collections. We recommend starting a new side hustle that can bring in extra money each month.
This may sound difficult, but it’s easier than you think. Here are some options:
- Drive for Uber, Lyft, or Door Dash
- Start a small house cleaning business you can do on weekends
- Start a landscaping/lawn care service
- Babysit/pet sit
- Start an online business (monetized blog, retail store, etc.)
- Find a work-from-home part-time gig (content creation, social media management, website creation, etc.)
There are a lot of ways you can earn more money, especially in today’s digital world.
7. Find Ways to Make Quick Cash
If you aren’t looking for another job, there are ways you can earn easy cash without committing more of your life to work, though you may need to make some sacrifices. For example:
- Rent out the spare bedroom in your house or apartment
- Rent out your car on the weekends
- Declutter your home and sell your unwanted stuff online
- Donate blood or plasma twice a week
- Fill out paid surveys online
Once again, there is no shortage of options here. You just need to be creative and willing to make the necessary sacrifices.
Looking for More Tips on How to Pay Off Debt in Collections
If you’ve got a debt that’s gone into collections, we understand how stressed out you must feel. Getting daily reminders about your financial situation isn’t exactly enjoyable. Fortunately, as you read above, you can learn how to pay off debt in collections.
If you need a loan, contact us today to get started or find out more about quick loans. You can also find more valuable financial information and advice on our blog. Good luck!