Should You Pay a Debt Collection Agency? The Truth Revealed

You’ve heard the advice: never pay a debt collector. Now you want the truth.

What really happens if you ignore collections? Should you pay the collector or the original creditor?

Debt collection agencies use questionable tactics to get paid. They start with harassing calls and escalate from there. But depending on your situation, you may not need to pay them at all.

How Debt Collection Agencies Operate

Debt touches most American lives. Four out of five Americans owe some form of debt. Collectively, Americans owe $14.9 trillion to various lenders.

Debt collection cases involve two parties. The debtor allegedly owes money. The creditor claims they’re owed money.

When creditors can’t collect a debt, they have two choices:

• Collect the debt themselves, which often becomes too much hassle
• Sell it to a debt collection agency for pennies on the dollar

Debt collection agencies buy unpaid debts for an average of just 4% of the original amount. They then try to collect the full balance from you.

Here’s how it works in practice:

Example: You owe $1,000 on a credit card. After months of missed payments, the credit card company sells your debt to a collector for $100. The collector then demands you pay the full $1,000. If you pay, they make a 900% profit.

Collection agencies specialize in tracking people down. They have access to bank records, voting data, and internet provider information. They employ skilled investigators who know how to find you.

The good news? Our partner Solo can help you fight back and win.

Paying Old Debts Can Hurt Your Credit Score

You might think paying a debt collector is the quickest solution. You pay them, and they leave you alone, right?

Not quite.

Paying a collection agency stops their calls. But the collection will stay on your credit report for seven years. The amount doesn’t matter. A $100 collection damages your credit the same as a $100,000 one.

Many people don’t even know they owe money. Creditors send notices to old addresses. Borrowers never receive them and continue their lives unaware. Meanwhile, the debt follows them everywhere.

Bad credit makes life harder. You’ll struggle to get approved for car loans, mortgages, or student loans. You may even have trouble renting an apartment or opening streaming accounts.

Here’s the twist: paying an old debt can actually lower your credit score. Any activity on your credit report can impact your score negatively, including payments. For debts that are one or two years old, paying them can hurt more than help.

When You Should Consider Not Paying

No single answer fits every debt collection situation. Ignoring collectors works for some people but not others.

If you refuse to pay, the agency may sue you. Debt collection lawsuits are serious. You can’t ignore them and hope they disappear.

You must respond within your state’s time frame, usually 14 to 30 days. If a debt collector wins their lawsuit, they can garnish your wages. A garnishment is a court order that takes money directly from your paycheck.

Meanwhile, interest continues to pile up on unpaid debt. The amount you allegedly owe keeps growing.

Sometimes paying makes sense. Debt collectors buy debts for pennies on the dollar. You can often negotiate to pay much less than you owe. Collectors may send you a letter confirming the debt is paid. You can use this letter to remove the collection from your credit report.

One critical tip: pay the right party. Debt collectors often sell debts to other collectors. Research who actually owns your debt before sending money.

Specific Situations When You Shouldn’t Pay

You May Want to Avoid Paying If:

• You have no income or assets and never plan to have any. You might be “judgment proof.” If you plan to own anything or earn income in the future, you’re not judgment proof.
• You don’t owe the debt. Never pay money you don’t owe. Send a Debt Validation Letter to stop collectors from hounding you.
• You want to settle for less. Send a Debt Validation Letter as part of your settlement strategy. The collector may give up or agree to settle for less.
• The statute of limitations has expired. Collectors can’t legally sue you for time-barred debts. Making a payment resets the statute of limitations, which is disastrous.
• The agency can’t prove they own your debt. Debt sales are often sloppy. If the collector can’t prove ownership, you don’t have to pay them.
• You’re morally opposed to paying anyone but the original creditor. Many people find it unethical for creditors to sell debts. You may feel no obligation to pay a debt buyer.

You May Want to Pay If:

• You owe the full amount and the agency legitimately owns the debt
• You want to resolve the matter quickly and have the funds available
• You believe you have a moral duty to pay debts regardless

What If the Debt Was Sold?

Consider this argument: You owed $1,000 to the original creditor. They sold your debt for $100 to a collector. If you pay $1,000 to the collector, the creditor isn’t restored. They already got their remedy in the $100 sale.

You arguably don’t owe the collector $1,000 since they only paid $100 for it. However, legally speaking, if a collector legitimately bought your debt through proper assignment, you do have a legal obligation to pay.

Settlement: A Better Alternative to Paying in Full

For most people, settlement makes the most sense. Collectors add hundreds or thousands in fees to your debt. These include court fees and attorney costs.

They also bought your debt for a fraction of its face value. If you paid the full amount they’re demanding, you’d be overpaying significantly.

On the other hand, ignoring the debt means they may hound you forever. Even after the statute of limitations expires, they can keep calling. They can sell your debt to increasingly aggressive collectors.

You can start the settlement process by filing an Answer to your debt collection lawsuit. Once you reach a settlement, you’ll have documents showing the case is dismissed with prejudice. The debt is resolved permanently.

How to Respond to a Debt Collection Lawsuit

If you’re sued for a debt, you must respond to the lawsuit or lose by default. When you ignore a debt collection lawsuit, the collector can request a default judgment. This gives them the right to garnish wages and seize property.

The first step to beating debt collectors is responding with a written Answer.

Follow these six tips to draft your Answer:

1. Keep it simple. Your Answer should respond to claims in the Complaint, not tell your life story. You can admit, deny, or deny due to lack of knowledge.
2. Deny as many claims as possible. Force the debt collector to prove their case.
3. Include affirmative defenses. Common defenses include expired statute of limitations, which voids the lawsuit.
4. Use standard formatting. Include a caption with court information, party information, and case number.
5. Include a certificate of service. Verify the address you used to serve the Answer to the opposing attorney.
6. Sign your Answer. Courts reject unsigned documents.

Filing an Answer often stops the lawsuit from proceeding. Sometimes the collection agency drops it altogether, especially without proof you owe the debt.

Our partner Solo increases your chances of winning a debt collection lawsuit by seven times.

Do You Have to Pay a Debt Collector?

No, you don’t have to pay a debt collector. However, failure to pay can lead to serious consequences:

• Legal action and lawsuits
• Wage garnishment
• Property liens
• Endless collection calls
• Decreased credit score

Certain situations exist where you don’t have to pay at all.

If the statute of limitations on the debt has expired, the collector has no legal grounds to sue. Even if they file a lawsuit, you’ll have a strong defense. The case will likely be dismissed, and you’re off the hook.

Another example is invalid debt. Debt fraud is common. You can request debt validation to determine if you must pay. If the collector can’t validate the debt, they must stop contacting you.

Never pay a collection agency before validating the debt and checking the statute of limitations.

How Collections Affect Your Credit Score

Debt in collections definitely hurts your credit score. Paying off the debt may improve your score with credit bureaus using newer scoring models like FICO 9 or Vantage Score 3.0 and 4.0.

Collections fall under payment history. Payment history drives 35% of your FICO score, making it the biggest factor.

Some lenders have policies prohibiting loans to people with unpaid collections. Resolving collections can open up lending opportunities you previously couldn’t access.