Pay the collection agency or the company I owe?

I’m not sure if this question should go here or in IMHO, so please feel free to move it if this turns into more of an opinion piece.

About nine months ago, my bank account went into a $444 negative balance as a result of a bounced payroll check. Due to subsequent payroll issues and being owed about $800, I was never able to pay the balance back - I’ve been struggling just to keep my bills paid so I put this one on the backburner. I realize how stupid this is, so please don’t lecture me on it. I’m barely holding my sanity together as it is right now :stuck_out_tongue:

Of course, my bank charged my account off and sold my debt to a collection agency. Now, the thing is, I’d rather pay back the bank as opposed to a shady collection agency that bought the debt for cents on the dollar (this is cold hard cash - not 3 missed payments on a cable bill or something). However, I realize that this may have even more adverse effects on my credit since the collection agency is “expecting” my money.

I’ll be receiving my tax refund in a couple of weeks and want to get this matter taken care of. I know my credit is already FUBARed from this, but I want to minimize the damage. Should I just settle with the collection agency or actually get in contact with the bank to offer them my debt directly - will they even allow me to do this? What would be the most self preserving move?

Thanks for an advice in advance!

My advice is to pay the collection agency. When I was very late on a phone bill, after I moved from my apartment, it was sold to a collection agency. I eventually paid the phone bill directly to the company, however, the collection agency is still damaging my credit to this day, over 8 years later. (It has re-appeared on my credit report several times after removal.) The collection agency will never give up, so you better just pay them now and get it over with.

Maceman, I wasn’t expecting such a perfect response to my question in 13 minutes. Thank you. I thought that might be the case. While paying the bank would be the more “moral” thing to do, it would haunt me for the next 7 years. On the bright side, the collection agency sent me a letter saying they would be willing to settle for 80% of the original balance.

In theory if you pay the bank they could recall the debt from the collection agency but I think that is not common.

The collection agency has purchased the legal rights to the debt. Even if you sent a check to the bank, they are legally obliged to forward the proceeds to the collection company…so that won’t really make much of a difference.

HOWEVER, there is the matter of the mark on your credit report. Collection agencies often have very slipshod systems for reporting, and removing or altering, marks on credit bureaus. Once you pay up, your bureau report should show ‘Paid in Full’ or ‘Settled’ next to the overdraft notice.

But many collection agencies don’t bother with this. The FCRA requires that if a company reports to bureaus, it must report accurately, including removing/altering those marks that change due to customer disputes. This is a pretty big area for legal liability and many collection agencies choose not to report at all, rather than risk that they’ll screw something up and get sued for mis-reporting.

So it might be worthwhile to get some sort of proof of payment/settlement with the collection company, and if they don’t mark your bureau with an updated status, to go back to the bank and insist they make the changes on your bureau. They will be in a much better position, with much tighter systems and procedures, to take care of this. I’m not sure if they are legally bound to do anything or not, but they might be.

Good luck.

Offer the collection agency 60% and see if they bite. Most likely they will and it shouldn’t make any different on how it appears on your credit report.

My understanding is that there is a BIG difference in how the reporting agencies score a report of “Settled” versus one marked “Paid in Full.” I wouldn’t agree to settle with the agency unless they promise in writing to report the debt as paid, not settled.

If you pay 60% (or any number less than 100%) you need to get in writing that they agree this is payment in full. They should agree to that.

Since this is due to an overdrawn bank account, whatever route you go, make sure you get a copy (NOT THE ORIGINAL!) to the bank, and also to Chexsystems. Otherwise, you may not be able to open a new bank account.


Thanks for all of the great advice everybody. I have another question. Should I request a letter that states that I will be paying the debt in full prior to actually paying the debt? I’m worried that they could promise they’d send me a letter stating such after I sent a check and then not follow through on it. Is this a matter that I’ll just have to trust them on?


Upon what date was your first letter from the CA posted?

This is one area of debt collection and credit reporting that needs much more stringent laws and/or regulatory oversights, IMO.

The collection agencies are empowered to fuck over your credit, but there is nowhere near as stiff a burden on them to make sure it comes out right once you pay your debt. There should be a system whereby, if a collection agency does not report a paid-up debt in a timely manner, they are compelled by law to return the money to the debtor AND to remove the mark on your credit report.

The debt collection system works because it hits defaulting debtors in the hip pocket. We should make sure the collection agencies have similar motivation to do the right thing.

I hope no one will mind my responding to mhendo on this matter. It is a slight hi-jack.


If the CA has been been paid, you can just lodge a dispute with the credit reporting agency about the item. At that point the CA has an obligation to either verify the debt with the CRA within 30 days or the item gets removed.
Most CAs will update the information properly, OR fail to validate, in which case it comes off.

Sure, but my point is that the person who has paid the debt shouldn’t have to jump through these hoops to get it removed, and there should be some form of penalty for collections agencies that don’t do their job properly in the first place. A bad debt on your credit report can have bad consequences, and if we hand these companies the power to place the report in the first place, we should also compel them to remove the reports in a timely fashion once the debt is cleared.

Sorry for the hijack. It’s just something that chaps my ass, is all.

My simple advice - do everything in writing, nothing over the phone.

If you do some googling, there are tons of simple form letters out there to help you word it correctly.

Send no money till you get an agreement from them in writing that satisfies you.