Should You Ever Pay A Collection Agency?

Is a collection agency relentlessly calling you demanding payment for an old debt? If you’re in this situation, it helps to know how to deal with debt collectors and if it would be in your best interest to pay them.

It’s only natural that most of us want to pay our outstanding debts. However, there may be other options available to you. Take the time to do your research before you decide.

Debt Collectors and What They Do

You didn’t borrow money from a debt collector, so why are they demanding payment? Debt collectors typically buy unpaid debts from other lenders. Most lenders don’t make money trying to collect overdue debts. The lender will try to collect payment from you for a while, but if that doesn’t work, they sell your debt to a debt collector.

The debt collector usually buys the debt for much less than the amount owed. If, for example, you have a credit card debt of $2,000 that you haven’t paid, the lender may sell that debt to a collection agency for $80-$100. The lender writes off the difference, but the debt collector will pursue you for the entire amount owed. They will demand payment for the full $2,000, which is how they make their money.

Debt collectors methods

If your lender sold your debt to a collection agency, the agency usually notifies you in writing. After they have sent a letter, they will call you repeatedly to collect the money. They may also contact your family and friends to get your contact information. In some cases, they may threaten legal action. If they are successful in their civil action, it could result in a garnishment of your wages or your bank account being frozen.

Provinces and territories have rules to regulate how debt collectors interact with debtors.  The laws that apply to you will depend on where you live. So, learning about what debt collectors can and can’t do in your province or territory will protect you from unnecessary harassment.

How to deal with debt collectors

Once you receive a letter from a debt collection agency, they will start calling you. Here are some steps you can take to protect yourself:

1. Verify the company is legitimate. First, get the name and contact information of the person you speak with. Next, visit their website to make sure the information is accurate. Then, check with the Better Business Bureau to see if they’re registered.
2. Get the details on the debt they claim you owe, such as the amount, when it was opened, and the last payment you made.
3. Confirm the debt is yours. Mistakes happen, and the company may have contacted you in error. On the other hand, it could be a debt you forgot about, you could be a victim of identity theft, or you might have the same name as the actual account holder.
4. Contact the credit bureau to see how the debt has affected your credit rating.

If all the information checks out and the debt really is yours, your next step is to decide how you want to handle the collection agency. One option you have is to pay them, which is a win for them. Paying off your debt will:

• stop the collection calls.
• reduce your stress.
• prevent possible legal action, such as being sued and wage garnishment.
• reflect on your credit report that you paid the debt.

Paying off the debt can be beneficial in some circumstances. Sometimes, a collection can be a debt you forgot about or went to the wrong address because you moved. These situations occur with bills like cancelled cell phone accounts and department store credit cards.

Paying off these types of debts will stop collection calls and threats of legal action or garnishment of your wages by the collection agency. Also, keeping a record of your paid collection could be helpful if you apply for future credit. The collection will be on your credit report but, with a receipt, you can show the lender you paid it.

Before you pay off a collection, make sure you have the money available. If you’re already overwhelmed with debt, paying off debt collectors is unlikely to help your situation.

Should you pay a collection agency?

Paying a collection agency can make things more difficult in the long run. First, you may pay more than you borrowed because of the accrued interest charges that occurred before your lender sold your debt. If you’re already having a difficult time financially, paying collections can make your financial problems worse by leaving you short of cash.

Debt collectors can initiate legal action against you if you don’t pay your debt. However, often the debt owing isn’t large enough to make it worthwhile for them to do so. It’s expensive to initiate a lawsuit, so collection agencies usually only take legal action against large debts.

You may not realize that there is a Statute of Limitations in place which applies to some old debts. A simple description of the Statute of Limitations in Ontario is that you can’t be sued for repayment if your debt is over two years old. Be aware that:

• The Statute of Limitations doesn’t apply to all debts.
• TIme limits vary depending on which province or territory you live in.
• You still owe the money regardless of whether or not you can be sued or if it appears on your credit report.

Paying your debt won’t help your credit score either. Your credit score is already damaged if you have a debt in collection.

A collection will report on your credit bureau for six years before it drops off. Any activity to your account will reactivate your time before the account drops off your credit report. So, if you haven’t paid your account for three years, it will drop off your credit report after another three years.

If you pay it off, however, the payment will reactivate your account. The collection will then stay on your account for another six years. Paying it off means it will remain on your credit report dragging your credit score down for nine years instead of six.

Alternatives to Paying a Collection Agency

Dealing with debt collectors is stressful, and they won’t go away until you pay them. However, there is another solution. At Adamson and Associates, we can help you resolve your issues with debt collectors. Our Licensed Insolvency Trustees can file a Consumer Proposal or Bankruptcy on your behalf.

A Consumer Proposal can reduce the amount of debt you owe by up to 80%. You’ll have a payment plan that will work with your budget. The benefits of a Consumer Proposal are:

The payments are reasonable.

You repay significantly less than you owe.

You keep your assets.

Filing for Bankruptcy will eliminate your debts so you can get a fresh start. Filing for Bankruptcy or filing a Consumer Proposal will stop all legal action and contact from your debt collector. Additionally, your debt and the stress that goes with it will be gone.

Please call Adamson and Associates today at 519-310-5646 for a free consultation. We will find the best solution for your debt.