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Ask Creditnet: Is it Worth Paying Off Debt in Collections?

Dear Creditnet: What's the advantage of paying off credit card debt that's still within the statute of limitations but already charged off and sold to a collection agency? If it's not going to help improve my credit scores right away, I'm beginning to think I might be better off just keeping the cash in my own pocket. -Adam from VA

Answer: While it's true that paying off a debt in collections might not do anything to immediately improve your credit scores, there are several other important things to consider before deciding how you will proceed. Ignoring the debt and keeping the cash in your own bank account might sound like a better option right now, but will you feel the same way when the collection agency serves you with a lawsuit to collect what you owe? Probably not.

If you have the cash to settle your debts now, my recommendation is to do so and put it behind you once and for all. Ignoring your debts doesn't make them go away, and dealing with a lawsuit at some point down the road will be a headache you definitely want to avoid if possible.

In addition, you might be able to convince the collection agency to stop reporting the negative account on your credit reports in return for paying your credit card debt in full. If you haven't formally asked yet, it's worth a try. And if the collection agency agrees to your request in return for payment, the removal of the negative account could have a very positive impact on your credit scores in the short run.

Finally, there are moral reasons to pay that should be considered as well. If you’re liable for the debt because you bought things or enjoyed services by financing them with your credit card, the right thing to do is repay what you owe. Think about how you would feel if you lent money to someone and knew they had the money to pay you back yet they never did.

While you may have no direct relationship with the collection agency, the situation is really the same if they legally own your debt. So pay what you owe, learn from your past mistakes, and move forward by making a commitment to yourself that you will never again carry balances on credit cards. Photo by Alan Cleaver

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Joshua Heckathorn's picture

Joshua Heckathorn was President of Creditnet, is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past ten years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

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