Plus, how to build better financial habits in the future.

By Katelyn Chef
June 10, 2021
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past due bills and calculator on table
Credit: Tetra Images / Getty Images

Falling behind on your student loans, credit card payments, mortgages, or car loans take a negatively impact your credit score-it can also mean these overdue bills are sent to collections. Colleen McCreary, chief people officer at Credit Karma, explains that when a bill gets sent to collections, the original creditor has sent it a third-party agency paid by the creditor to collect the overdue debt. "Most lenders will try to collect the debt themselves before resorting to writing it off and passing the collection to another party," she adds. "Typically, past-due accounts won't be charged off and sent to collections until they're 120 to 180 days late."

First, confirm that the collection notice as accurate. Within the first five days of contact, a debt collector is required under the Fair Debt Collection Practices Act to send you a debt validation letter; this letter should outline details about the debt being collected, including how much you owe. Once you've done your due diligence, take this advice.

How to Resolve Outstanding Debt

If you have a bill that goes to collections, what should your next step be? McCreary recommends that you don't panic, but don't ignore the notice either. "If you're looking for help with managing your debt, you may want to set up an appointment with a credit counselor." There are resources that people can reach out to for help. "A National Foundation for Credit Counseling-certified counselor could help you create a debt management plan, which may reduce the collections calls you to receive and limit your interest charges and fees," says McCreary.

In other circumstances, debt collectors may want to negotiate the debt or create a payment plan. "If you decide to go this route, the CFPB recommends that borrowers try to negotiate their debts themselves before hiring a debt settlement agency, especially because many debt settlement companies charge expensive fees," says McCreary.

Building Better Habits

When an unpaid bill does go to collections, it can have a damaging impact on your credit score as the original creditor has written off the debt entirely. "That's why working hard to get current before an account enters collections can help your credit recover faster from a late payment," says McCreary. The statute of limitations on a debt refers to how long the creditor can legally attempt to collect the money owed. This can vary by state; however, it doesn't have any bearing on how long this instance appears on your credit report. Collection accounts can remain on your report for up to seven years from the original delinquency date.

If it's been more than a couple months since paying off your debt and your account still hasn't been updated, you can dispute this through a credit bureau-such as Equifax, Experian, and TransUnion-by sending any documentation you have to support your claim, such as a letter from the collection agency confirming that the debt is paid in full. And in the future, ensure that your bills are paid on time and balances are paid down regularly.

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