Why Pay Debt Collectors?

Debt collectors purchase a variety of debts from companies that cannot collect, such as hospitals and credit card companies, and attempt to recover those debts themselves. The debt collection agency profits by purchasing accounts for far less than the value of the debt and then collecting the full balance. There are several valid reasons consumers pay debt collectors.

Avoiding a Lawsuit

Debtors sometimes agree to pay off their collection accounts merely to avoid a lawsuit. As the legal owner of the account, the debt collection agency reserves the right to sue the consumer in court. If the company wins, the individual may face such consequences as wage garnishment, a bank levy and even property liens.

Collection agencies only enjoy the legal right to sue consumers for a limited period of time. Once the statute of limitations for collection lawsuits expires in the debtor's state, the individual no longer has to fear a lawsuit. Unfortunately, not all individuals realize this and some pay old debts in an effort to prevent a lawsuit that is not even legal.

Credit Repair

Paying off a collection account does not improve your credit score. A collection account, whether paid or unpaid, is always a derogatory entry in your credit report. If a debt collector agrees to delete the collection account from your credit report, however, your credit will improve. Collection agencies are not likely to delete credit information without incentive to do so. Thus, some individuals negotiate with debt collectors to remove their negative credit information in exchange for payment.

Personal Responsibility

Even if paying a collection agency does not benefit you in any way, satisfying your unpaid debts is a way of accepting responsibility for past mistakes. In order to be truly debt free, its necessary to resolve all of your outstanding accounts---including those that are in collections.

Although paying debt collectors does not improve your credit score unless the company deletes its information from your report, doing so will result in the derogatory notation updating as "paid." This looks better within your credit history than debt that remains unpaid.

New Mortgage Application

All mortgage lenders' policies differ, but your mortgage company views unpaid debts as a liability. Owing debt to a collection agency makes you a higher default risk---especially if your debt is still within your state's statute of limitations for a lawsuit. Some consumers pay debt collectors in order to eliminate their outstanding debts and qualify for the mortgage loan they need at the interest rate they want. Factors that influence whether or not your mortgage lender will expect you to pay off outstanding collection accounts when you fill out a loan application include the amount you owe and the age of the collection account.