Is It Better to Pay a Collection Agency or the Original Creditor?

Falling behind on debt payments can happen to anyone. Maybe you lost your job or faced unexpected medical bills. Whatever the reason, you suddenly find yourself unable to make minimum payments on a credit card, personal loan, or other debt.

This predicament leads to an important question: If your debt goes to collections, should you pay the original creditor or the collection agency?

The answer depends on whether the original creditor still owns the debt or sold it to a third-party debt collector Let’s break it down

How Debts Get Sold to Collection Agencies

When you stop making payments on a debt, the original creditor (the company you owe money to) will try to collect what you owe They’ll call you and send notices urging you to pay

If you still don’t pay after several months, the creditor will likely charge-off your debt as a loss and sell it to a collection agency. This debt sale takes place for pennies on the dollar. The creditor recoups a portion of the bad debt, and the collection agency hopes to profit by collecting the full amount from you.

Other times, the original creditor hires a collection agency to collect on debts on their behalf. In this case, the original creditor still owns the debt while the agency tries to get you to pay.

Either way, once a collector gets involved, they’ll aggressively try to get you to pay through frequent calls, letters, and even lawsuits.

Should You Pay the Original Creditor or Collection Agency?

If possible, it’s best to pay the original creditor before your debt gets sold or assigned to collections. Here’s why:

• Avoid credit damage. Having a collection account on your credit reports severely hurts your credit scores. This can make it harder to get credit, loans, housing, and even jobs down the line.

• Better terms. The original creditor will likely offer better repayment options, settlements, and compromises compared to a collection agency.

• Retain goodwill. Paying the original creditor preserves your relationship as a customer. They want to keep your business.

• Avoid aggressive collections. Dealing with the original creditor directly prevents intimidating debt collection tactics.

So if your debt is with the original creditor or a collection agency collecting on their behalf, start there to explore repayment options.

Can You Pay the Original Creditor Once It’s in Collections?

If the original creditor still owns your debt but assigned it to collections, you may be able to negotiate payment directly with the original creditor.

To do this:

• Contact the collection agency and ask for the original creditor’s contact information.

• Call the creditor’s internal collections department.

• Ask if they’ll work directly with you on repayment options.

The original creditor may agree to this if you’ve already started repayment with the collector and proven you’ll stick to a plan.

If the debt was sold entirely to a collector, the original creditor no longer owns it. You’ll have to pay the agency that bought the debt to resolve it.

Tips for Negotiating With the Original Creditor

If your debt is still with the original creditor, you have power to negotiate repayment terms. Follow these tips:

• Know what you can pay. Review your budget to see what’s realistic on a monthly basis or in a lump sum.

• Offer settlements or payment plans. Propose either a discounted lump-sum settlement or affordable monthly payments.

• Get promises in writing. Before paying anything, get written confirmation of settlement terms and payment expectations.

• Ask for credit report improvements. Request removal of negative information if you pay as agreed.

Understanding Your Rights With Debt Collectors

If your debt is with a third-party collection agency, know your rights under the Fair Debt Collection Practices Act (FDCPA). Debt collectors can’t:

• Threaten or harass you
• Lie or misrepresent information
• Call before 8 am or after 9 pm
• Talk to others about your debt
• Take or threaten to take your property

You can report violations to the Consumer Financial Protection Bureau or Federal Trade Commission.

The Bottom Line

It’s best to pay debts before they ever go to collections. But if your debt is in collections, try to negotiate directly with the original creditor if they still own it. This avoids credit damage and intimidating collector tactics.

If the original creditor sold your debt, dealing with the collector is your only option. But remember you have power to negotiate discounted settlements thanks to consumer protection laws. Acting quickly gives you the most leverage.