The Best Ways to Pay Credit Card Debts That Are in Collection

Considerations

There is no "best" way to pay off a collection account. The manner in which you pay has benefits and disadvantages. Your goal for paying the debt should guide your decision. If you need to settle debt in the cheapest manner possible, you can usually get away with a partial payment. By paying the entire debt, you could save your credit score.

Settlement

Collection agencies and creditors often agree to accept a partial payment and consider the account settled, because it avoids legal fees and the debtor including the account in a bankruptcy. The downside to this is the probable negative impact to your credit rating. Settling an account is a negative, unless you can convince the creditor to report the account as "paid in full." Collection agencies rarely agree to any demands when the debtor tries to settle the account. This method works best when you want to pay as little on the account, while getting the collector to consider the matter settled.

Pay in Full

Paying the account in full usually guarantees the creditor will report the account as "paid in full." Repaying the entire balance also gives you much more leverage than with a settlement. Asking for the creditor to delete the account with the credit bureaus is a common request by people who pay the entire amount due. This boosts your credit score, because collection accounts are a heinous offense in the lending world. However, the collection agency does not have to agree to any demand.

Payment Plans

Setting up a payment plan with a collection agency usually puts the debtor in the worst position, because the collection agency might renege on the agreement and charge interest on the account or revoke a settlement. Also, the payments could make the account look more recent than it really is. Payment plans generally only help to avoid a wage garnishment after a court judgment. You can pay every bill on time and have a written agreement with the agency, according to Credit Builders Alliance.

Warning

Review your state's law on the statute of limitations on debt. In most states, credit card accounts count as credit card debt and become noncollectable in three or four years. Once the statute of limitations passes, the agency cannot go after a judgment, so paying is unnecessary and will leave your report shortly. If you go for an account deletion, also get it in writing and consider hiring a lawyer to draft the document, called a restrictive endorsement.