When to Repay Debts with Creditors vs. Debt Collectors | Equifax (2024)

FAQs

Should I pay the creditor or the collection agency? ›

It's important to try and pay the original creditor before a debt gets sent to collections. In some cases, the original creditor may be able to reclaim the debt from collections and work out a payment plan with you. A collection account on your credit report harms your credit score considerably.

Try to negotiate with your original creditors before they sell your debts. Taking the bull by the horns at this stage could help you keep a few points on your credit score. Your original creditor may also have programs that can help you get back on track with payments.

Although the average settlement amounts to 48% of what you originally owed, that number is a bit skewed. If your debts are still with the original creditor, settlement amounts tend to be much higher. You can end up paying up to 80% of what you owe if the debt is still with the original creditor.

An original creditor may attempt to collect a past due debt or account itself, or it may hire a debt collector. A debt collector is generally a third party who has been contracted to collect your debt or account.

Apparently, a particular bank will sue delinquent credit card holders rather than use a collection agent. They figure you won't respond, leaving a court to decide to award them all the money they say they are owed. In the end, they received nothing since they did not show up to court; case dismissed.

It's possible in some cases to negotiate with a lender to repay a debt after it's already been sent to collections. Working with the original creditor, rather than dealing with debt collectors, can be beneficial.

The three most basic rules for negotiations are: 1) Prepare, 2) Listen 3) Be Present. This sounds obvious, but how often do we not follow those three basic rules?

Don't Make Promises or Admit the Debt is Valid

Even if it's clear you owe the money, you should refrain from making any statements such as "I know I owe this and will pay you as soon as I can" or "I can start paying you next month." Your acknowledgment of the obligation might revive the statute of limitations.

It is possible to negotiate directly with creditors and settle your debt for less than you owe, but you may want the help of a professional. A quick counseling session from a certified credit counselor can help you discover your options and choose the right path forward.

If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.

How often are debt collectors successful? ›

According to recent statistics, the average success rate for debt collection agencies in the United States is around 20-30%. This means that for every $100 of outstanding debt, a debt collection agency is only able to recover $20-30 on average.

Most obligations settle between 30%-50% of the original value. If the debt collection agency is unwilling to accept any settlement, you may negotiate a payment plan with them. Payment plans can keep you out of court, and you won't need to fork over a large amount of cash at once.

While debt collectors can't threaten you or mislead you, they can apply pressure to collect payment. This pressure can include daily calls, frequent letters, or talk about pursuing a lawsuit for payment on the debt — as long as they stay within the bounds of the law.

If you refuse to pay a debt collection agency, they may file a lawsuit against you. Debt collection lawsuits are no joke. You can't just ignore them in the hopes that they'll go away. If you receive a Complaint from a debt collector, you must respond within a time frame determined by your jurisdiction.

It's better to communicate with debt collectors in writing

You might be wondering if it's better to communicate with debt collectors over the phone or in writing. In short, it is almost always better to keep all communications with debt collectors in writing.

Can you dispute a debt if it was sold to a collection agency? Your rights are the same as if you were dealing with the original creditor. If you don't believe you should pay the debt, for example, if a debt is statute barred or prescribed, then you can dispute the debt.

If the debt is not collected, then the debt collector does not make money. In many cases, although you would think that debt collectors would eventually give up, they are known to be relentless. Debt collectors will push you until they get paid, and use sneaky tactics as well.

You might get sued.

The debt collector might file a lawsuit and get a money judgment. A creditor with a money judgment can garnish a debtor's wages, go after the funds in a debtor's bank account, and seize property not protected by an exemption. Learn about lawsuits stopped by bankruptcy.

Don't give a debt collector any personal or financial information until it sends you this validation notice—it may be a scam. Make sure you dispute the debt in writing within 30 days of when the debt collector first contacted you.

The most secure way to pay a debt collection agency is by mailing a check with a return receipt. This will prove that the collection agency accepted the check.

What is the number 1 rule of negotiation? ›

- When you negotiate, you should never go beyond your limit. Now, your limit is the most you'll pay if you're buying, and it's the lowest price you'll go to if you're selling. And you need to set that limit before you start and never, never go beyond it.

Golden Rule One: Information Is Power – So Get It

The first Golden Rule is essential to success in any negotiation: Information Is Power—So Get It! It's critical to ask questions and get as much relevant information as you can throughout the negotiation process.

Individual communication styles also translate into how they negotiate. From these patterns of communication, five distinct negotiation styles have emerged: competing, collaborating, compromising, accommodating, and avoiding.

One controversial tactic in debt collection is a relatively new term, debt shaming. This involves some level of public disclosure by the collector to bring attention to a debtor who has not satisfactorily paid their debt.

Unfortunately for individuals dealing with debt, a creditor is under no obligation to negotiate a settlement, according to the Federal Trade Commission. The same rules apply to collection agencies.

Start by offering cents on every dollar you owe, say around 20 to 25 cents, then 50 cents on every dollar, then 75. The debt collector may still demand to collect the full amount that you owe, but in some cases they may also be willing to take a slightly lower amount that you propose.

One of the most rigorous rules in their favor is the 7-in-7 rule. This rule states that a creditor must not contact the person who owes them money more than seven times within a 7-day period. Also, they must not contact the individual within seven days after engaging in a phone conversation about a particular debt.

What is a drop dead letter? ›

You have the right to send what's referred to as a “drop dead letter. '' It's a cease-and-desist motion that will prevent the collector from contacting you again about the debt. Be aware that you still owe the money, and you can be sued for the debt.

A debt trap means the inability to repay credit amount. It is a situation where the debtor could not be able to repay the credit amount.

The Debt Collection Rule limits the contact a debt collector can make with consumers. Examples of such limitations include: No calls before 8 a.m. or after 9 p.m. in the consumer's time zone. No subsequent contact with the consumer for seven days following a conversation with them. No more than seven phone calls per ...

The statute of limitations on debt in California is four years, as stated in the state's Code of Civil Procedure § 337, with the clock starting to tick as soon as you miss a payment.

Ignoring or avoiding the debt collector may cause the debt collector to use other methods to try to collect the debt, including a lawsuit against you. If you are unable to come to an agreement with a debt collector, you may want to contact an attorney who can provide you with legal advice about your situation.

Negotiate With the Judgment Creditor

It's never too late to negotiate. The process of trying to grab property to pay a judgment can be quite time-consuming and burdensome for a judgment creditor.

Can debt settlement hurt your credit? Because creditors report debt settlement to the credit bureaus, it can indeed have a negative impact on your credit score and can stay on your credit report for years to come.

Typically, a creditor will agree to accept 40% to 50% of the debt you owe, although it could be as much as 80%, depending on whether you're dealing with a debt collector or the original creditor. In either case, your first lump-sum offer should be well below the 40% to 50% range to provide some room for negotiation.

It's important to try and pay the original creditor before a debt gets sent to collections. In some cases, the original creditor may be able to reclaim the debt from collections and work out a payment plan with you. A collection account on your credit report harms your credit score considerably.

Several potential consequences of not paying a collection agency include further negative impacts to your credit score, continuing interest charges and even lawsuits. Even if you can't pay the debt in full, it's often best to work with the collection agency to establish a payment plan.

What happens if I don't answer collection calls? ›

Your credit score could take a hit if you repeatedly ignore calls from debt collection agencies. This might make it difficult to take out a loan in the future—or even get a part-time job, since many employers run credit checks prior to hiring.

It's better to pay off a debt in full (if you can) than settle. Summary: Ultimately, it's better to pay off a debt in full than settle. This will look better on your credit report and help you avoid a lawsuit. If you can't afford to pay off your debt fully, debt settlement is still a good option.

' Once you pay the collection agency, the debt will remain on your credit report for six more years, two years longer than not making a payment. Even if the collection agency agrees to accept less than the full amount owing, it's still on your credit report for six more years.

The most secure way to pay a debt collection agency is by mailing a check with a return receipt. This will prove that the collection agency accepted the check.

Don't give a collector any personal financial information, make a "good faith" payment, make promises to pay, or admit the debt is valid. You don't want to make it easier for the collector to get access to your money, or do anything that might revive the statute of limitations.

With most collection accounts, if you pay them in full, their impact on your credit doesn't go away immediately. You'll usually have to wait until they reach the end of their seven-year reporting window. The good news is that the older the information is, the less impact it should have on your credit.

In general, collections accounts stay on your credit report for up to seven years, even when they're paid off in full. That means that paid collections can continue to hurt your creditworthiness for that length of time. However, the impact of collection accounts on your score lessens with time.

The best way is to pay

Most people would probably agree that paying off the old debt is the honorable and ethical thing to do. Plus, a past-due debt could come back to bite you even if the statute of limitations runs out and you no longer technically owe the bill.

It's always a good idea to pay collection debts you legitimately owe. Paying or settling collections will end the harassing phone calls and collection letters, and it will prevent the debt collector from suing you.

It's pretty simple: If you owe the money and have the money, you should pay the money. Paying in full is always the best way because you'll avoid paying more in interest and late fees.

What's the most reliable way to pay off debt? ›

Pay off your debt and save on interest by paying more than the minimum every month. The key is to make extra payments consistently so you can pay off your loan more quickly. Some lenders allow you to make an extra payment each month specifying that each extra payment goes toward the principal.

Mail a letter to the collection company and ask it to stop contacting you. Keep a copy for yourself. Consider sending the letter by certified mail and paying for a “return receipt.” That way, you'll have a record the collector got it.

Start by offering cents on every dollar you owe, say around 20 to 25 cents, then 50 cents on every dollar, then 75. The debt collector may still demand to collect the full amount that you owe, but in some cases they may also be willing to take a slightly lower amount that you propose. A payment plan.

The debt collector could then garnish your wages and bank accounts, meaning it could take money from your paycheck or accounts. Make sure you respond by the date stated in the court papers so you can defend yourself in court.