In today's high-cost, high-stress economy, it can be tempting to turn to your short-term borrowing options, like credit cards and payday loans, just to stay afloat between paychecks. But while payday loans, in particular, are easy to secure with a low credit score, making them enticing to those with less-than-ideal credit scores, they are notoriously hard to repay. The average two-week payday loan comes with fees and costs that total about $15 per $100, making them . And, many borrowers end up renewing or rolling over the same loan multiple times, further increasing the costs. 

So, while payday loans tend to be pitched as a one-time solution to financial shortfalls, this type of borrowing can snowball into a cycle of borrowing that's hard to escape. The recent rise in living costs, driven by an uptick in housing expenses, years of high inflation and elevated interest rates, has only made things tougher for payday loan borrowers, too. These economic issues are eating into the average person's budget, so borrowers are struggling just to cover the necessities right now, much less hundreds or thousands of dollars in fees on a payday loan.

So what happens if you can't pay a payday loan back on time? Does it get sent to a debt collector to deal with — or are other collection tactics used instead? That's what we'll answer below.

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Can payday loans be sent to collections?

If you fall behind on a payday loan, the lender can, and often will, send your account to a collection agency. This can happen fairly quickly, too, especially if you've stopped communicating or failed to repay after a certain number of rollover periods. 

From there, the collection process begins. You might start receiving phone calls, letters or even emails from debt collectors demanding payment. And, if your payday loan was sold to a third-party debt collector rather than an internal debt collector, they might tack on even more fees, interest or other penalties. That, in turn, can push the total amount you owe well beyond the original loan amount.

It's also worth noting that many payday lenders don't report directly to the major credit bureaus but collection agencies do. That means while your payday loan may not have appeared on your credit report before, once it's in collections, it likely will. This can damage your credit score and affect your ability to get approved for credit cards, car loans or even housing.

In more extreme cases, the debt collector who buys or is assigned your payday loan debt might take legal action against you. If they sue and win, they could be granted a judgment that allows them to garnish your wages or place a lien on your bank account or property, depending on your state laws.

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What to do if your payday loans are sold to a debt collector

If your payday loan has been sent to collections, don't panic. Take action instead. Here's what you need to do:

Don't ignore the calls or letters. It can be tempting to avoid communication when you're stressed, but ignoring a debt collector won't make the problem go away. In fact, it could make things worse, especially if the debt collector sues you and you fail to respond to court documents.

Request debt validation. You have the legal right under the Fair Debt Collection Practices Act to request written verification of the debt. Once a collector contacts you, you have 30 days to submit a written request for validation. They must then provide proof that the debt is yours and that they're authorized to collect it.

Understand your rights. Debt collectors must follow the law. They can't threaten you with jail, call at odd hours or contact you at work if you've told them not to. If you believe a debt collector is crossing the line, file a complaint with your state attorney general's office.

Try to negotiate. Once the debt is validated, you may be able to settle for less than the total owed. Many debt collectors purchase debts for pennies on the dollar, so they're often willing to work with you to forgive a portion of the debt in return for a lump-sum payment.

Get help if you need it. If the situation feels overwhelming, consider speaking with a credit counselor or debt relief expert. They can help you assess your options and protect your rights, especially if legal action is involved.

The bottom line

Payday loans are risky from the start, but the fallout from not repaying them can be even worse. Once a payday loan enters collections, you could face ongoing collection attempts, damage to your credit and even lawsuits. You're not powerless in this situation, though. Help is available, whether you find relief by negotiating directly with the debt collector, exploring a debt management plan or talking to a professional. So, if payday loan debt has taken over your financial life, now's the time to act and get back on track before things spiral further.