Will Debt Consolidation Work With a Bill in Collection?

Consumers sometimes turn to debt consolidation loans to pay back their bills. You can use the money from a consolidation loan to pay back a bill in collection, though you should carefully consider your other options before taking a loan to pay back another loan.

Debt Collections

When you are late in paying your bills, your creditors can initiate collections processes. Usually, these efforts come in the form of written or phone communications either from the creditor itself or a collections agency it has hired. These collections efforts are persuasive in nature, meaning the creditor is simply trying to convince you to pay. You can use any method you wish to pay back the debt in this stage, including using a consolidation loan.

Judgment Collections

Regardless of the kind of debt you've incurred, a debtor has to sue you in court before it can take certain actions, such as freezing bank accounts or garnishing your wages. If the creditor wins, it can then come after you using these tactics but may also opt to continue the persuasive collection efforts. Regardless of the state of the lawsuit, you can pay back the bill to settle the case, and you can use funds from a consolidation loan to do so.

Loan Consolidation

Debt consolidation essentially means getting a loan to pay off one or more other laoans. By getting a new loan, you pass on the obligation to pay back your other loans to the new lender. While this might be an effective for some borrowers, it does nothing to eliminate your debts. If you obtain a consolidation loan to pay off a bill in collections, you will stop the calls and communications from that bill collector, but you will still have to pay off the consolidation loan.

Other Concerns

Paying for a debt in collections will end the collections process, but that doesn't mean you always have to pay the entire debt. Some consumers can negotiate a debt settlement that allows them to pay a portion of the debt as final satisfaction of it. Debt settlements have their own pitfalls, such as further damaging your credit report, but are a viable option for those who cannot otherwise pay the bill.