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Is your credit card debt in collections? 7 ways to get rid of it

In debt, cut up credit card
Having credit card debt in collections can be a big burden to carry; luckily, there are ways to tackle it now. Getty Images

Today's economic landscape, marked by elevated interest rates and persistent inflation, has resulted in an increasing number of people being burdened by credit card debt that they're struggling to repay. After all, the cost of everything from groceries to housing has increased rapidly over the last few years, leaving many people's budgets stretched. This, in turn, has led to a concerning rise in severe credit card delinquencies.

The repercussions of falling behind on credit card payments are numerous, and all of them can be financially devastating. And, the more common ones, like late fees, penalty interest rates and damage to credit scores, are just the beginning. As delinquencies continue over time, cardholders face the risk of having their accounts sent to collections agencies, escalating an already precarious situation.

Having an account in collections can have far-reaching impacts on your financial health, making it difficult to secure loans, housing or even find employment. And, collections agencies may employ aggressive tactics to recover the debt, leading to increased stress and anxiety. Plus, the debt can continue to grow with additional fees and interest, making it increasingly challenging to resolve. So, it's crucial to address credit card debt in collections as quickly as possible to prevent further damage.

Find out what debt relief options you have for your credit card debt.

Is your credit card debt in collections? 7 ways to get rid of it

If you have debt in collections, there are several options for tackling it. Here are some strategies to consider:

Pay it off in full

If you have the means to do so, paying off the credit card debt in full is the quickest way to resolve the issue. This approach immediately stops further collection efforts and begins the process of repairing your credit. However, it's important to get any agreement you make in writing and after the debt is paid, be sure that the collection agency reports the account as paid to the credit bureaus.

Learn more about how working with the right debt relief company can benefit you here.

Work with a debt relief company on a settlement

Many debt relief companies specialize in negotiating with creditors to settle credit card debts for less than the full amount owed. By taking this route, you could settle your outstanding credit card debt for just a fraction of what you owe — provided that the negotiations are successful. 

But while working with a debt relief company to achieve debt forgiveness may lead to owing less on your balance, be aware that this option can have further negative impacts on your credit score (in addition to the damage that the debt in collections has had). You'll also typically owe fees to the debt relief company in return for their services.

Consolidate your debt

Another option you may have for credit card debt that's in collections is consolidation. Debt consolidation involves combining multiple debts into a single loan, often with a lower interest rate. This can be done through a debt relief company's debt consolidation program or by obtaining a debt consolidation loan from a bank or financial institution. 

This approach can simplify your payments and potentially save money on interest, so it can be a great way to lower the cost of both the debts in collections and any other debts. However, you'll typically need at least a good credit score to qualify, which could be tough if you have multiple collections accounts on your credit report.

Negotiate a settlement or payment plan on your own

You can also attempt to negotiate directly with the collection agency to settle for less than the full amount or arrange a manageable payment plan. This requires careful communication and documentation of all agreements, but if you have strong negotiation skills and can work with the creditors you owe to lower your balance, you may be able to wipe out the collections accounts without paying extra fees to a debt relief agency.

That said, the accounts that are settled will typically reflect as being settled for less than owed, so it can still have a negative impact on your credit score, at least temporarily.

Seek help from a non-profit credit counseling agency

Non-profit credit counseling agencies or organizations are also an option if you want assistance with how to best approach your debt in collections. The goal of these agencies is to offer free or low-cost advice on managing your debt, and by working with one, you can explore various solutions tailored to your specific situation. 

For example, some will offer debt management plans to the cardholders they work with. The goal of these plans is to help lower the interest rate and fees associated with your debt, which can lower the debt burden, making it easier to pay off your collections balance in full. 

Use other tactics to get the debt cleared from your credit report

Debts have a statute of limitations after which creditors can't legally continue to report the debt to the credit bureaus. Before agreeing to pay any debt in collections, request that the collection agency provide proof that the debt is valid and that they have the right to collect it. This can sometimes reveal errors or even invalidate the debt. Or, if the debt is old enough, disputing it could lead to the collections account being deleted from your credit report entirely.

Start fresh with a bankruptcy filing

While not ideal, bankruptcy can provide a fresh start for those overwhelmed by debt — removing your current debt obligation, including the ones that are currently in collections. However, filing for bankruptcy has serious long-term consequences and should only be considered after exploring all other options. So before you take this route, it may help to explore all of your other options and consult a bankruptcy attorney if you want to ensure that this is the best move for your finances. 

The bottom line

While facing credit card debt in collections can be overwhelming, it's important to remember that solutions are available. When dealing with this type of debt, be sure to carefully evaluate each option based on your financial situation, the amount of debt and your long-term financial goals. And, remember that resolving the debt is just the first step; rebuilding your credit and establishing healthy financial habits are crucial for long-term financial stability.

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