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Why You Should Never Pay a Collection Agency (Not In Full Anyway)

Last updated 03/19/2024 by

Benjamin Locke

Edited by

Fact checked by

Debt collection agencies buy up debt from different lenders for less than its dollar value and try to collect it for a profit. Paying off your debt via a collection agency could have negative implications for your credit report, so in many cases, not paying a debt collection agency makes sense. However, it’s imperative to understand the consequences of not paying off your delinquent debt.
When you think of a debt collector, you might picture someone like Dog the Bounty Hunter, star of an early 2000s reality show, chasing down people with delinquent jail bond debt. Although most debt collectors don’t come with the mullet-topped pizzazz of Dog the Bounty Hunter, a call from a debt collection agency can instill the same type of fear. However, if a collection agency calls you, it might actually be best not to pay them at all in some cases. It sounds scary, but there are reasons for this, which we highlight below, along with some alternate ways to handle the debt.

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Why wouldn’t you pay a debt collection agency?

Debt collection agencies are companies that buy up debt from different types of lenders, typically for a fraction of the dollar value of the debt. Unfortunately, once the debt actually goes to a collection agency, most of the damage to your credit report is already done. In some cases, paying a collection agency might cause the delinquency note on your credit report to stick around longer than usual. Therefore, you might want to consider these other options:
  • not paying the debt back (with possible consequences)
  • managing the debt payments through a counselor or a plan
  • reaching a settlement
  • going to court
All of these options should be weighed carefully, along with the profile and purpose of the debt.

Collection agencies buy your debt!

If you lived through the 2008 financial crisis, you might be familiar with the concept of financial institutions buying debt by purchasing people’s mortgages. Collection agencies work in a similar fashion but are in the business of buying other types of debt, such as credit card debt, healthcare bills, and more. As an asset (like a house on a mortgage) does not back the debt, collection agencies are able to buy the debt at a significant discount. In fact, on average, collection agencies buy up debt for 4% of the original amount.
Let’s look at the table below to model it out.
Original debt$10,000
Price of debt$400
Potential profit$9,600
Collection rate10%
Profit with collection rate$1,920
Here you can see a debt of $10,000 that was purchased by a collection agency for $400. This means if they were able to collect every single debt, they would make $9,600, or a profit margin of 96%. However, they won’t be able to collect all the debts. But even if they only collect 20% of the debts — meaning out of 10 debts of $10,000, two are collected — then the collection agency still makes a significant profit of $1,920 ($960 x 2).
And now you understand why they call you all the time. A debt collection agency will harass you because they get a significant profit from every debt holder that they can coerce into paying them the money.

Why not pay the collection agency?

No one wants to get embarrassing calls from collection agencies. However, even though it might be tempting to get them off your back as soon as possible by paying them, it is not always the best option. Here are reasons why you sometimes should reconsider.

Your credit report/credit score does not change

Once the debt goes to a collection agency, the damage is already more or less done. On average, it takes around seven years for the credit bureaus to remove the debt from your credit report. This means that if you are counting on your credit score to bounce back once you pay off your debt to a collection agency, you are out of luck.

Pro Tip

In some cases, paying a collection agency can actually prolong the time this unpaid debt is on your credit report. A payment to a collection agency can result in a “new payment,” which then resets the time frame to another seven years from when the new payment was made.

You can fight debt you don’t think you owe

Many times, people get calls from a collection agency about debt that they don’t even know they have. In this case, there might be an option to fight the debt if the borrower doesn’t think they deserve it. They might want to consider calling the original debt holder and inquiring about the issues.

Options when a collection agency calls

If you are getting calls from a collection agency and don’t know what to do, here are some options you might want to consider instead of paying your debt in full.

Reach a settlement

Sometimes you will be able to reach a settlement with a collection agency to pay only a fraction of the debt you owe. Remember, as the collection agency bought your debt for pennies on the dollar, anything over the 4% they put in is profit. Many will settle for an amount below the “market value” of the debt to get the deal through so they can make some kind of return on their investment.
If you find yourself in this situation, compare your options for debt settlement companies below.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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Work with a credit counselor and get a plan

A credit counselor can help streamline all of your debts and devise a debt management plan on how to pay them. Although in most cases, you will still have to pay the debt in full, you can receive breaks on interest and late fees. This is particularly helpful if you are in a bit of a sticky situation financially and halve multiple calls from collection agencies per day. A debt management plan in this case might give you a more tranquil existence.

File a debt validation letter

A debt validation letter is a legal instrument asking the collection agency to prove certain details of the debt. Sometimes, the collection agency will not have the evidence, which will force them to stop calling you. However, in many cases, this will lead to a court case, as outlined below.

See them in court

If you do not pay or file a debt validation letter, then you will probably be headed to court in the form of a lawsuit filed by the debt collection agency. If you definitely owe the debt, then this can cause issues as you might lose the case in court and be on the hook for the additional legal fees. A court date should be seen as a method of last resort and only be used if you are sure you are going to win.
Be careful, though. Sometimes, collection agencies will go to extreme lengths to collect money. According to Kevin L. Deeb, a partner at the Deeb and Deeb law firm specializing in bankruptcy, “There’s a now-famous case where a Pennsylvania debt collector created a mock courtroom, sent uniformed security officers (appearing to be real police officers) to serve subpoenas on unwitting debtors and have them appear in front of a fake judge who would hand out sham judgments, all to scare the debtors into paying.”
Derek Jaques, an attorney dealing with personal bankruptcy, has also seen some extreme efforts to collect debts. “I have seen creditors call family members and friends of debtors to harass them into paying their debt,” he says. “One such case was a young man who owed a creditor $500, and the collection agency was calling the young man’s grandmother at 10 or 11 p.m. at night and threatening to make her pay it.”

When would you not pay the debt at all?

There are certain situations in which you can potentially forget about the debt or take the collector to court.

You have nothing and plan on having nothing

If you have absolutely no income or assets to your name, then you might want to consider just not paying the debt. However, if you plan on having income and assets in the future, then those might be considered fair game. Therefore, this option should only be taken by people planning not to have any income or assets in the future, such as Buddhist monks in training.

The statute of limitations has expired

If the statute of limitations on the debt has expired, do not pay it, as you are now not legally obligated to do so. As mentioned above, this could theoretically reset the statute of limitations on the debt to an additional seven years from when you made the payment.

It’s not your debt

Collection agencies have human beings working for them, and as we all know, humans can be prone to mistakes. If you are sure the debt isn’t yours, you can usually call the initial lender or creditor to sort out the problems with the collection agency.

Collection agency lacks evidence

This is information you would find out if you sent a request for a debt validation letter. The collection agency will need to provide various pieces of evidence related to the debt and your ownership of it. If they can’t produce these types of documents, then you are off the hook.


Why shouldn’t you pay off your collection account?

There are some cases in which you shouldn’t pay your debt to a collection agency. These are: you have no assets or income and don’t plan to in the future, a credit counselor gives you different advice and you think you can settle the debt for less, or you think you can win a court case because of doubt of ownership or lack of debt ownership evidence.

What happens if you never pay a collections debt?

In most cases, the collection agency will sue you in court. In this case, you need to be sure that you will win the court case. However, you are going to want to pay or attempt to settle the debt for less before the debt collection agency files a legal case against you. If they do take you to court and win, they can get lines on your assets and have your wages garnished directly from your bank account.

Is it worth paying a collection agency?

If you have exhausted all the other options and the only remaining option is court, then yes. However, you can usually settle with the collection agency for less.

How can I get a collection removed without paying?

If the statute of limitations period has passed, even if you continue to receive debt collection calls, you can get a collection removed without paying. Furthermore, if the debt isn’t yours or the collection agency lacks the proper evidence, you can also have it removed.

Key takeaways

  • Although you should always try to pay your debts, paying a collection agency the full amount of debt you owe might not be the smartest idea.
  • Debt collection agencies buy your debt from lenders or creditors for cents on the dollar and make a profit by getting you to pay it partially or in full.
  • Paying off debt to a collection agency will have a minimal effect on your credit reports right away. In some cases, it can actually cause the debt to stay on your credit report long into the future.
  • Settling the debt for less, engaging a debt counselor, asking the collection agency for debt validating proof, or going to court are all alternate options to paying your collection agency debt in full.

SuperMoney may receive compensation from some or all of the companies featured, and the order of results are influenced by advertising bids, with exception for mortgage and home lending related products. Learn more

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