Paying Off a Collection Account

Settling Old Accounts

If you want to make wiser use of credit, then negotiating a settlement for any past due amounts can help you in developing the right mindset for avoiding future debt. However, before you take action, you will first need to determine if the debt is still legally owed and, if so, the best payment method to use.

Check the Statute of Limitations on the Account

First, verify that an old collection account has not legally fallen outside of the statute of limitations. If you pay any part of a debt that is no longer considered due and payable, then the action is considered as an admission of the debt and therefore will restart of statute of limitations for the account. State statutes of limitations vary, so you need to look up the guidelines for your State If the debt is past the statute of limitations then negotiate hard with the collector by submitting a written proposal for 10% or less on “original” principle amount.

Types of Past-due Accounts

Accounts can be classified as:

• Written contracts
• Promissory notes (Similar to a written contract, but the loan terms are spelled out, such as those represented by a mortgage)
• Open-ended accounts or credit card accounts 

Avoid Being the Target of a Scam: Does the Collector Work for a Credible Company?

Before you pay any amount too, you want to make sure the collector works for a bona fide agency and that you are not a target of a scam. When agreeing to a settlement then, ask for verification of the debt in writing. Follow up by contacting the Attorney General’s office in your state to determine if the agency is licensed. If licensure is not a requirement, then call the BBB (Better Business Bureau) to make sure that the agency is registered.

Don’t Fall Prey to Any Undue Pressure

Collectors sometime pressure consumers in utilizing payment methods that they are not comfortable about using. If you run into this issue and you need some time to determine which payment method to use, don’t fall prey to the pressure. Take notes of your conversation and do not pay the amount until you figure out which method works best for you.

How Will the Money be Used?

Before allowing a collector to collect on an account, ask that the terms be put in writing. Have the collector fax, mail or email a letter which contains the accepted payment amount and which outlines how the money is going to be used. For instance, will the money be used to remove the overdue balance from your credit history or to pay off the account in full? Make sure the collector states the amount to be paid will satisfy “all” claims on the debt.

Keep Any Backup Documentation

Regardless of the payment method you choose to use, make sure you keep copies of the paperwork for the payment (such as receipts, checking account records, and statements). Keep the documentation for several years to prevent any issues that may later surface.

Make Sure the Amount was Recorded

Once you do make payment for a past due account, always plan to follow up to make sure that the amount actually went through and was applied and recorded to the settlement. If you can afford to do so, pay an attorney to have the amount sent via a law office check.

Pay by Paper Check

Don’t pay a collector by having the amount electronically taken out of your checking account if you can help it. You have more control by using the old-fashioned method of paying by check. Plus, you can send the check by certified mail to make sure of its receipt. The cancelled check can also serve as proof that you paid the balance on the account. 

Never Replace an Old Debt with a New Debt

Also, never ever pay a debt with a credit card – a practice that will place you further into debt. If you are unable to pay off an old debt without acquiring new debt, then it is in your best interest to seek credit counseling or advice from a bankruptcy attorne