Collection Agency vs Original Creditor: Who Should You Pay?


Without a doubt, it can be extremely stressful to have an old debt following you. Fielding endless calls from creditors or collection agents is always headache-inducing.

Unpaid debts that linger on your credit report will drag your credit score down, down, down. How quickly your score will tank depends on the size of the debt and how overdue it is. Being mindful of your credit rating and what is listed on your credit report(s) is important to your overall financial stability.

Even if one of your older debts becomes marked as ‘charged off‘ on your credit report, that in no way indicates that you don’t have to pay back the money, and will actually cause your credit score to fall even lower.

Additionally, if you’re trying to wait out the statute of limitations on your debt, be prepared to watch your credit score do a nose-dive in the interim, which could be up to 15 years! Each state has a different statute of limitations time period for different types of debt; you can view the chart here.

New Jersey’s statute of limitations on unpaid debt is six years across the board, but there are many ways to inadvertently ‘reset’ the debt clock, which means you may double or even triple the waiting period. You can imagine what might happen to your credit score in that amount of time.

What, then, is the best way to get out from under an old debt in order to improve your credit score? If the money owed is a legitimate debt that you are responsible for, your best move is to pay it off if you can. Given the fact that we’re discussing old debts, it’s highly likely that your original creditor no longer ‘owns’ the debt. At minimum, they have likely written the debt off of their books (charged off) and have hired a collection agency (also known as a debt collector).

Collection agencies work for creditors and lenders by attempting to recover unpaid debts for them. In return, the original creditor pays the agency a fee or a percentage of the amount recovered. If your debt is over six months old, you are likely receiving calls and letters from a collection agency rather than the creditor to whom you originally owed money.

The fact that you are attempting to pay off old debts in order to clean up your credit score is a sign that you are taking steps in the right direction. Kudos! However, you may run into some difficulty when you decide to officially make payment.

Who should you pay?

If you’ve been getting calls from a collection agency, should you make payment directly to them? What if the original creditor is still operating an active business?

Before making any payments on your old debt(s), you must verify who ‘owns’ the debt. Contact the original creditor and ask them if they are working with the collection agency that has been calling you. They should be able to tell you if you should pay the collection agency, or if you can pay them directly.

Paying the original creditor directly can cause potential problems, though, so be careful. Carefully check your credit report to see who is listed as currently owning the debt. Your creditor may have also sold your old debt to a debt buyer, in which case, you may see an unfamiliar listing on your report. Anything unfamiliar on your credit report needs to be closely examined.

The bottom line: If you’re making good on old debts so that you can watch your credit score rebound, good on you. To ensure that the debt will be marked as ‘satisfied’ on your credit report, do your due diligence so that you pay the right company.

On the other hand, if you want to pay off your old debts but simply do not have the means to make that happen, filing for bankruptcy can erase many (if not all) of the money you owe. Debt reorganization and/or negotiation may also be the answer to your money problems.


Image credit: Pictures of Money

One Response to Collection Agency vs Original Creditor: Who Should You Pay?

  1. Pingback: Can They Do That!? Illegal Tactics of Debt Collectors | Veitengruber Law

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