How to Pay Collections

When you’re trying to conquer unpaid debts sent to collections, you’ll likely face some obstacles. Two of the most common are coming up with enough money to pay off the debt and negotiating a payment plan or settlement you can afford. Once you’ve accomplished these tasks, you may still be wondering how to pay collections to a debt collection agency. Find out how to pay collections below.

1. Verify the Debt

Do not make any payments or acknowledge ownership of the debt without first making sure you owe the debt and that it’s still within the statute of limitations for your state. In many states, if you make a payment or acknowledge a debt, the clock on the statute of limitations will restart. Once past the statute of limitations, collectors cannot successfully sue you for the debt, but you do still owe the debt and they can still call to collect it.

You have the right to verify the debt to ensure you are not the victim of a debt collection scam. In addition to requesting a written validation notice from the collector, verify with your state attorney general’s office or the Better Business Bureau that the collection agency is legitimate. If you suspect that you are being contacted by a scammer, you can submit a complaint with the Federal Trade Commission.

2. Know Your Rights

The Fair Debt Collection Practices Act (FDCPA) provides protection for consumers. Many states also have their own laws in additional to federal protections afforded by the FDCPA.

If your debt goes into collection, it’s imperative you know your debt collection rights.

• Collectors must provide a written notice explaining the debt—including the amount, the name of the original creditor, and your right to dispute the debt—within five days of contacting you the first time.
• Collectors cannot lie to you, harass you, or threaten you. They can’t threaten to take action they cannot legally take or intend to take.
• Collectors generally are not allowed to discuss your debts with anyone other than a cosigner. A spouse or your legal representative will need to be given authorization in many cases to speak to your collector. They may contact friends or family—only once—asking for help reaching you.
• Collectors are limited in when they can call your home or place of work. If you request that they stop contacting you while at work, for example, they must comply.
• If you request that collectors handle all communication through your attorney, they must comply.

There is also a statute of limitations for how long collection agencies are able to pursue legal action against you. Be sure you understand the statute of limitations in your state and other protections granted under your state’s laws.

3. Determine What You Can Afford to Pay

Starting a budget can help you understand what you can afford to pay each month. Go over your income and expenses to come up with a realistic amount you can pay. Use that during negotiations with creditors.

4. Negotiate a Settlement or Create a Debt Payment Plan

When you can’t afford to pay a balance in full, don’t be afraid to negotiate with a debt collector to reduce the amount you must repay. Successful negotiations may include these steps:

• Explain your current financial situation without getting too specific.
• Start negotiations by offering a payment lower than what you are willing to pay.
• Get a counteroffer from the collector.
• Go through rounds of offers before reaching an agreement.
• Obtain all settlement details in writing before submitting any payment.

Some collectors may refuse to negotiate and will demand you pay the debt in full. Some may tell you that you have to use the payment method they prefer and use high-pressure tactics, such as threatening to mark you down as “refusing to pay” if you won’t. It’s not illegal to refuse to use any payment method, so stand firm if you need time to figure out how to pay. Don’t let a debt collector bully you into paying an amount you can’t afford or that causes you to let your other financial obligations slide.

Creating a Debt Management Plan

While debt collectors aren’t required to accept a payment plan, they can be a great way to get a debt paid off. Keep in mind that making any kind of payment arrangement with a debt collector can restart the statute of limitations on your debt. Based on how much you can afford to pay and other individual needs, you can set up one of the following:

• A short-term payment plan that lets you pay off the debt in a set number of months.
• A lump-sum payment plan that’s scheduled for a specific date.
• A partnership with a debt management company to arrange one monthly payment to be distributed amongst your creditors.

Negotiating Medical Debt

A note on medical debt: Paying off medical debt is similar to paying off any other type of debt, but there’s generally more room to negotiate the terms of repayment and a reduction of your debt. Some medical providers let you pay for “financial aid” or an in-house payment plan so you can keep the debt from going into collections and damaging your credit. Other ways to pay off your medical debt include the following:

• Pursue payment plans offered by many medical providers.
• Apply for medical credit cards for specific procedures.
• Hire a medical bill advocate to negotiate on your behalf.
• Apply for an income-driven hardship plan.
• Seek nonprofit organizations that help pay off medical debt.

If you have a verifiable hardship, such as a disability that prevents you from working, you may also be able to pursue medical debt forgiveness. Your medical provider may need your tax returns and other written documentation that proves you have no means to pay your medical debt.

5. Make Your Payment

Once a debt collector sends you a written agreement, review it carefully for accuracy. There are many different ways you can pay, which we go into more detail about below, but there are a few general recommendations to keep in mind. When you make your payment, avoid giving your bank account or debit card information to the collection agency. Instead, pay with a money order or certified check if possible.

You’ll want to watch for fees related to payments, as well. There could be a check by phone fee or other fees related to a particular payment method. If there are, ask for them to be waived.

And once the payment is made, follow up. “I cannot stress this more: make sure the payment was entered correctly or received,” says Leslie Tayne, a New York attorney who specializes in consumer debt resolution. “There are so many times when the person taking the payment makes a mistake, and the payment doesn’t go through. Make sure all payments are received, applied and the settlement is still valid.”

6. Document Everything

Document your settlement agreements and payments thoroughly. Debt collectors may change the agreement later or file lawsuits for the remaining amount you owe. Make sure you get a signed agreement. When you pay, send it through certified mail with a signature required on the return receipt. Follow up with the collection agency to ensure your payment was credited to your account. Then, check your credit reports with the credit bureaus to confirm the debt is no longer being reported as outstanding.

“Regardless of payment method, consumers should always keep documentation of their payment,” says Mark Schiffman, Director of Public Affairs for the credit and collection industry trade group ACA International. “Keep these records in a place you can access them easily and indefinitely. Debts sometimes resurface years later.”

How Should You Pay a Collection Agency?

If you’re not sure how to pay off collections, you have a lot of options. They include:

• Bank account draft or ACH
• Personal check
• Postdated check
• Debit card
• Credit card
• Prepaid card
• Law office check
• Money transfer
• Money order
• PayPal

Each of these methods has its own pros and cons. Find out more about each below.

1. Bank Account Draft/ACH

Many debt collectors will ask for your checking account information so they can take your payments right out of your account. It’s a convenient option that typically costs you nothing, but it’s not always a safe payment method. The general consensus is to avoid giving your bank account information to a debt collector unless you set up a separate account for this purpose.

“Never pay this way,” says Mike Arman, a retired mortgage broker. “Auto debit is permission to access your account whenever they feel like it and then say ‘Oh, we made a mistake’—and do you think you’re getting any money back? They can also come back later for more, whether by ‘accident’ or design.”

2. Personal Check

Mailing a personal check is a cheap payment option, and you have the canceled check as proof of payment. But it’s not very fast. For this reason, it’s not usually at the top of the list for preferred payment methods by debt collectors.

Plus, you’re giving your checking account information to the collector, which may be bad news for you. Avoid using a personal check, unless it comes from a separate account set up to pay the debt collector.

Alternatively, you can use your financial institution’s online bill pay service. Gregory B. Meyer, former Community Relations Manager at Meriwest Credit Union, explains, “Your online banking sends them a check that’s basically guaranteed funds like a cashier’s check, but your personal info, like your account number, doesn’t show on it.”

3. Postdated Check

Under the Fair Debt Collection Practices Act, debt collectors aren’t supposed to deposit postdated checks before the date on the check—or even threaten to do so. If a collection agency accepts a postdated check that’s dated more than five days in the future, it’s also supposed to notify you in writing 3 to 10 business days before depositing it.

However, not all debt collectors follow these rules, so it’s best to avoid postdated checks. “Collectors will say that sending postdated checks is part of the terms. It’s not true and you can negotiate that,” says Tayne.

4. Debit Card

The general advice when it comes to debit cards is the same as paying with bank account drafts or ACH payments. Debit cards access funds in your checking account, so it still gives the collector access to this account. Although you’re generally protected against unauthorized withdrawals under the Electronic Funds Transfer Act, it may be difficult to prove an amount wasn’t approved since you gave the debt collector your debit card information.

5. Credit Card

Paying a debt collector with a credit card doesn’t make the debt go away. Instead, you create a new debt and additional finance charges on your credit card. Most advisers say to avoid using credit cards to pay debt collectors.

“Paying one debt off while racking up new debt is an oxymoron,” warns Howard Dvorkin, founder of Consolidated Credit Counseling Services. “If a person truly finds themselves in a financial situation where they’re borrowing from Paul to pay Peter, they need to reach out for help.”

6. Prepaid Card

Any collection agency that accepts debit or credit cards can accept a prepaid card. You simply load money onto the card and give the collector your card number. The card isn’t tied to your bank account, so your personal information remains private. Most prepaid cards let you spend only what’s loaded on the card, so you don’t have to worry about overdraft charges or the debt collector pulling more money from your account.

Prepaid cards solely used to pay a debt collector are a relatively safe alternative, but make sure to look for a low-fee card and keep a record of your payment. Also, watch out for debt collection scammers who instruct targets to load money onto a prepaid card and then mail the card to them. This allows scammers to be paid with virtually untraceable funds, and refunds are nearly impossible.

7. Law Office Check

If you have an attorney handling your case, one of the safest ways to pay collections is to have them do it for you. “Pay your attorney and have your attorney send them a law office check,” suggests Arman. “Even the dumbest bill collector knows better than to screw around with a check drawn on ‘The Law Office of . . . ‘. There’s also an unassailable audit trail, and the bill collector never gets any of your account information.”

8. Money Transfer

Debt collectors like money transfers from services like Western Union or MoneyGram—or wire transfers directly from your bank or credit union account—because they get paid quickly. However, a money transfer can be expensive, and it’s difficult to confirm whether the debt collector received payment. It’s also a potentially risky payment method because money transfers are the preferred payment method for scammers, warns the Federal Trade Commission. It’s like sending cash, and you can’t get it back because there’s typically no way to reverse a transfer or trace the money.

9. Money Order or Cashier’s Check

Money orders are relatively inexpensive and can be purchased at a post office, bank, or credit union and most convenience stores and grocery stores. On the downside, it’s difficult to prove a collection agency cashed the money order you sent. It’s a cheap payment method that helps you maintain financial privacy, but make sure you keep your money order receipt and proof of delivery in case the collector says you didn’t pay. A similar alternative is a cashier’s check. These cost a bit more than money orders, but they’re easier to prove payment.

10. PayPal

While it’s uncommon for debt collectors to accept PayPal to collect on a debt, it’s possible a collector would allow this payment method. PayPal is likely safer than letting a debt collector take money from your bank account, but transfers could take several days, and there may be fees involved.

Should You Pay Off Collections?

You should pay off collections to avoid hurting your credit score and having to deal with wage garnishments or bank account levies. An outstanding collection account will most likely lower your FICO credit score and stays on your credit report for seven years from the date of delinquency.

This can hurt you even if you’re not trying to borrow money. For example, if you’re seeking new employment, being considered for a promotion, trying to rent an apartment, or applying for or renewing your insurance, a longstanding unpaid account on your credit report could make you appear untrustworthy and negatively impact all these situations.

What If You Don’t Owe the Money?

Mistakes happen. Perhaps you paid the original debt off already but now it’s showing up in collections. Maybe the debt is well past the statute of limitations.

For whatever reason, if you feel you don’t owe the debt, you can dispute it within 30 days of the initial notice of collection. If you think a collection is inaccurately or unfairly showing on your credit report, start by ordering your free annual credit report to find out what’s being reported. Then, draft credit dispute letters or work with a credit repair service to request inaccurate negative items be removed. Your credit score will probably thank you for the effort.

Track Your Credit

Keep a proactive eye on your credit by signing up for our free Credit Report Card. Your personalized report card will give you letter grades in each of the five key factors that affect your credit score so you can see at a glance how you are doing.

You can also sign up for ExtraCredit to see 28 of your FICO scores from all three credit bureaus. An ExtraCredit account also gives you exclusive discounts for reputable credit repair companies, and more.

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