Is It Better to Pay Your Debt Off Through a Creditor?

Paying off a debt through the original creditor is usually a good idea but often is not possible. For example, the original creditor may refuse to accept payment for a delinquent account it has already placed with a debt collector. In some instances, the original creditor may refuse to even discuss the account, and instead refer the debtor to the debt collector.

Timeline

Creditors use internal collection teams to begin the collections process but eventually turn accounts over to debt collectors after collection efforts fail. The creditors turn over the accounts after about six months, although they can do so earlier. The debtor remains responsible for full payment, however.

Notice

Debt collectors notify debtors of the new status of the account by contacting them by telephone or mail. Some debtors may react by calling the original creditor to work out a payment plan or a settlement. What happens next depends a lot on if the original creditor sold or assigned the account to the debt collector. A debt assigned to a debt collector means the creditor still owns the account, with the debt collector working on commission. However, an account sold means the original creditor no longer owns the account. Some lenders sell delinquent accounts to so-called "junk debt buyers" for as little as pennies on the dollar. The accounts are usually delinquent by several years, with the original creditor finally giving up on collecting. Junk debt buyers usually purchase bad debt in bulk, and then begin collecting on individual accounts. In these situations the original creditor could not accept payment because it no longer owns the debt.

Status

People receiving notices from debt collectors should contact the original creditor. The creditor can offer important information, such as if it still owns the debt and if so, the name of the debt collector collecting on the debt. The debtor should ask the creditor if direct payment through the creditor is still possible. Creditors who still own accounts placed with debt collectors may or may not accept payment depending on their business relationship with the debt collector.

Considerations

The Fair Debt Collections Practices Act, a federal law, gives debtors the right to force debt collectors to prove that they have the right to collect on a specific debt. After first receiving written notice from the debt collector, the debtor has 30 days to dispute the debt by writing a letter. Disputing the debt protects the debtor's rights and stalls the debt collection process. By law, the debt collector must suspend debt collection efforts after receiving the letter disputing the debt and requesting verification of the debt. The debt collector can provide verification by sending the debtor proof of the debt, such as a recent billing statement or signed credit card application.