Yes, A Debt Can Go To Collections Despite Monthly Payments

by Sarah Szczypinski
Debt Can Go to Collections When Making Payments photo

Think your lender can’t sell your debt to a collection agency as long as you are you are making payments? Well, think again. And learn ways to avoid debt collection as you pay down at your debt balances.

Paying off debt can be a tedious process, but what happens if your efforts aren’t good enough? Despite popular myth, it isn’t illegal for a lender to sell your debt to a collection agency even if you are making payments. This consequence occurs if you fail to comply with the terms of your service agreement, and the result could cost you hundreds of credit score points. Avoid the fallout by learning more about the ways to avoid debt collection as you chip away at your balance.

I’m still paying off my debt. What qualifies as acceptable terms?

While every agreement is different, general term involves repaying your debt (or a minimum amount) on a monthly basis. Missing too many payments or paying less the required minimum could lead to debt collection and further credit damage.

I’m making payments and the debt was still sold to collections. Why?

Unless it’s a clerical error, you probably failed to make a minimum payment as mentioned above. For example, suppose you have $5,000 in credit card debt. The monthly minimum payment is $100, but you have only paid $65 for the past three months. Your lender may consider these payments insufficient to continue carrying your debt, deciding instead to charge off the account as a business loss and sell the remaining balance to a debt collector.

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Is my lender required to notify me before selling my debt to a collection agency?

No. Your lender is not legally bound to notify you, but there are a few early exceptions. For example, the Illinois Fair Patient Billing Act requires hospitals to allow customers to complete the following steps before selling debt to a collection agency:

  1. Assess the accuracy of the bill.
  2. Apply for financial assistance under the hospital’s financial assistance policy (the hospital must give a patient 60 days from the date of discharge or receipt of outpatient care to submit an application for financial assistance).
  3. Request a reasonable payment plan. Hospitals may require patients to provide verification of inability to pay the full amount in one payment.

Notification depends on the type of debt and your state’s laws. Do your research or talk to a professional to ensure that your rights are upheld.

What can I do to avoid damaging my credit score?

Collections are the final straw for a lender. In fact, it’s in their best interest to keep you indebted and paying interest on your balance for as long as possible. With that in mind, take the following steps:

  • Contact your lender. Whether it was a clerical error or a deliberate decision, the best way to respond to a collection call is to contact your lender directly. Ask them to review the details of your account with you and provide a written record of their decision.
  • Negotiate terms. In some cases, debt is not sold. Instead, it is merely transferred to a collection department within the same company. Use your negotiation skills to find a solution that will not damage your credit further. Ask them about options to avoid reporting the collection to the credit bureaus, how to satisfy the remaining balance, etc.
  • Talk to a professional. Navigating collection terrain is a difficult task, especially when valuable credit score points are at stake. Consider allowing a credit repair advocate to act as a representative on your behalf.

Reviewed January 2022

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