consolidate debt when it is in collections

One fine day when you pull up your credit report, your eyeballs almost pop out from their sockets. It’s chock full of accounts in collections! There’s medical debt collections, student loan debt collections, credit card debt collections, and more. After you get over your initial shock, you have some questions:

  • Why should I pay off debt in collections?
  • How can I dispute a debt in collections?
  • How can I even pay a debt in collections?

Let’s look at the answers to these questions, one by one.

Why should I pay off my collection debt?

Because your credit will be tanked for ages if you don’t. Paying off debt is extremely important, even when it’s in collections. If you don’t pay your debts, then you’re likely to face constant harassment, get sued, and find your wages garnished. That’s all on top of having your credit score plummet to earth and stay there, like a wounded bird.

How to dispute a collection debt

The first thing you should do is make sure it’s legitimate. Scammers abound, and even honest brokers get it wrong sometimes. Once you’ve confirmed that the collections attempt is on the up and up, then you can think about consolidating your debt. But if you have any doubt that the debt is valid, then you should dispute the collection account.

Under the guidelines of the Fair Credit Reporting Act, you can dispute the collection debt with the credit reporting agencies. They will verify the account details after receiving your dispute letter and give you a reply within 30 days. If they find that the collection account is illegitimate, then it will be removed from your credit report, and you won’t have to pay it.

Under federal law, you can also dispute the account with the collection agency. If collection agencies can’t validate the debt within 30 days, you can ask them to remove the account from your credit report. They’re supposed to honor your request. If they don’t, the next best option is to consult an attorney and fight the abuse.

That’s the basics. Go here to get more information on how to dispute collection debts and eliminate them from your credit report

How to pay off collection debts

There are 3 ways to pay off a debt in collections:

  1. Pay the full amount after confirming that the debt is valid
  2. Consolidate collection accounts
  3. Settle the accounts for less

The first option doesn’t need much explanation. We’ll discuss options two and three in the next sections.

How can you consolidate collection debt?

Here are 3 ways:

  1. Enroll in a debt consolidation program
  2. Take out a debt consolidation loan
  3. Transfer your balance to a credit card

Let’s explore these options.

1. Enroll in a debt consolidation program:

In this scenario, you consolidate all your debt into a single debt from one vendor, who usually will negotiate with each debt collector to lower the interest rate and eliminate late fees. Then you make one single monthly payment until it’s paid off.

This is a good option for those people who don’t have a good credit score or assets. They get a chance to get their debt under control, make payments towards eliminating it, and gradually improve their FICO score. To learn more about the kinds of debts you can consolidate, check with OVLG.

2. Take out a debt consolidation loan:

A consolidation loan can be a breath of fresh air when you’ve been suffocating under a ton of debt. You’ll need to have some assets to draw on, though, and will very likely need to put up collateral. For example, if you have equity in your home , then you may be able to take out a home equity loan and use it to pay off debts. This may be a short-term solution, however, if you find yourself having to borrow again, and you’re putting your house at risk. If you fail to repay your loans, then you end up paying with your house.

Timing is everything when it comes to consolidating your bills with a loan. Think carefully before taking out a home equity loan. You need to check out the interest rate on the loan and also calculate how much equity you have accumulated.

If your credit score is below 600, then it could be tough to qualify for a loan. Plus, if you don’t have any assets, then you have to apply for an unsecured debt consolidation loan, which is both rare and expensive. Most lenders do not offer unsecured loans because the risk is too high.

3. Use a balance transfer credit card:

When you qualify for a credit card with 0% APR, you can transfer the balance of the collection accounts to this new card and pay it off within the promotional period. Theoretically, that sounds pretty good. But practically, this is not as easy as it sounds. Let me explain why.

First, is the credit limit on the 0% APR card high enough to cover the entire balance? If not, it’s a partial solution at best.

If it is, you have to inform the new credit card issuer that you would like to transfer the entire balance from a credit card account that has been assigned to a collection agency to this card with 0% APR. The card issuer may need more details to make the transaction than they would for a current account. If you have those details, which may be as simple as the name of the debt collection agency and your account number with them, there shouldn’t be a problem.

Also, this option may not be for everyone. Your accounts are in collections because you couldn’t make payments to your creditors. If your monthly income has increased, and you can make monthly payments on the collection accounts, it’s time to do some calculations.

Usually, you need to have a good credit score to qualify a credit card with a 0% APR. Moreover, you may not get the desired credit limit on your new card. When you don’t have a good credit score, or the offer on the balance transfer card is not good, you will have to find another solution.

See also: Thinking of using balance transfers for debt relief? Think again.

Why should you consolidate collection accounts?

Debt consolidation helps you to simplify your payment process. This alone is a big reason to consider debt consolidation. Instead of multiple debt collection accounts, you only need to make a single payment every month, making it very easy to track your progress on paying off debts in collections.

Debt consolidation may also allow you to have late fees and waived, and lower your average interest rate in the process. The end result is money saved.

How to settle collection debt for less

When your account is in collections, settling the debt can result in paying less than you would otherwise owe. Debt settlement programs lower payoff amounts and provide relief from additional charges from debt collectors.

Debt settlement is a viable option for anyone with the cash reserves to make the necessary lump sum payment.

Here’s how to settle collection debt for less

How to settle collection debt for less yourself How to settle collection debt for less through law firms like OVLG
Ask for written debt validation. Ask collectors to validate your accounts.
Check out the statute of limitations period in your state. Figure out if the statute of limitations period in your state has expired.
Call the debt collectors and inform them that you can’t pay the full amount. Call 800-530-OVLG and speak to our financial coach.
Give answers to all the questions of debt collectors including your income, expenses, and savings. Understand the debt settlement program and join it online.
Ask debt collectors to reduce your payoff amount. Discuss with your Client Representative Associate about the smallest details.
If the debt collectors agree, then ask them to send you the settlement agreement. Relax and let your CRA negotiate with debt collectors and bring the best deal for you.
If the debt collectors don’t agree, then it’s best to approach a law firm or a debt settlement company for doing the negotiations since they can sue you otherwise. Look at the deal and see how much collectors are ready to reduce your payoff amount.
  If you’re satisfied with the deal, pay the agreed amount, and settle your collection debt.

What to consider before paying off debts in collections

  1. Can you afford to pay the full amount?
  2. How long will it take to pay off debts in consolidation?
  3. What will happen if you can’t complete the consolidation process?

Will paying off collection debt improve your credit score?

FICO®'s credit score and FICO® Score 9 don’t penalize credit scores once collection accounts show a zero balance on the credit report. Similarly, the VantageScore® credit score 3.0 and 4.0 don’t hurt your credit after a zero balance is reported for your collection accounts. Once you pay off or settle collection accounts, your credit score is likely to go up.

Unfortunately, some lenders use the old credit scoring models. So, you may see that your credit score has not gone up even after settling collection debts.

If your account is in collections, debt relief is only a few calls away. Call 800-530-OVLG to get the best debt solutions..

Of course, it’s impossible to answer every possible question in one short article. Expand the conversation by posting your questions in the comments section below.

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