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The Do’s and Don’ts of Dealing with Debt Collectors

It can be a real challenge when trying to settle out of control debts to come up with a settlement or repayment plan that is affordable. However, once you've finally put together a financial recovery plan you can live with, how do you actually go about making payments? Not all payment methods are equally safe and effective. While there is no method that is best under all circumstances, here are some things to consider before you decide what method of dealing with debt collectors works best for you.

Paying By Bank Account:

It is common for debt collectors to suggest that you give them the information they need so that your payments can be taken directly from your account. While such an arrangement can be convenient with no fees attached, it also carries certain risks. Do you really want to give anyone the power to reach into your bank account at will? What if they make a mistake and take too much? Can you get your money back, and how soon? There is also the danger that money may be withdrawn when your account is too low, thereby burdening you with bank overdraft fees. In addition, your ability to block an unwanted withdrawal may be limited by bank processing times. One way of avoiding these hassles is to set up a separate bank account for debt payments only, which will increase your level of control while reducing risk. However, it may be that you should simply choose a better method of payment, something other than handing the keys to your bank account over to your bill collector.

Paying by Debit Card:

Because a debit card is tied to your checking account, many of the same dangers of using a checking account also apply to debit cards. It can be difficult to prove that any withdrawals were not authorized by you or to collect money after it has been improperly withdrawn. Find a better way to pay than by debit card. 

Paying by Personal Check:

Using a personal check to pay your bills is inexpensive and provides you with proof of payment with the cancelled check. However, it has the disadvantages of being slow in delivery while also inadvertently handing over information about your checking account to the bill collector. These drawbacks can be sidestepped by using an online bill paying service provided by your financial institution. That way you will get speed and privacy. Avoid using postdated checks, as they can cause unnecessary complications due to inconsistencies in policies among collection agencies.

Paying by Credit Card:

Don't try to fix your problems by using the means that probably helped you get into trouble in the first place. Paying by credit card does nothing to lower the debt, but actually worsens the situation by adding interest and finance charges to your bill. This borrowing from Peter to pay Paul can only lead to a bad end. If you have reached the point where you are creating new debts in order to pay off old debts, then it's time to consult a credit advisor or a bankruptcy attorney. 

Paying by Prepaid Card:

A simple and safe way of making payments is to use a pre-paid card, since the collector can never get any more money than you put into it. However, there are fees and you will only have your statement as proof you paid. Shop around to get the best deal and never send the card itself to the collector. They may suggest this as a "convenience" to you, but it actually strips you of the ability to trace your money and makes demanding refunds virtually impossible. 

Paying by Money Transfers:

Using a wire service to send money from your account to the collector's account is one of the fastest ways to pay a bill. However, there are always fees involved that can be expensive, perhaps $75 or more. It can also be hard to verify that payment has been received and used for the purpose intended. Wire transfers are loved by scam artists because they can quickly turn it into cash and are hard to trace. However, if you can afford the fees and can arrange proof of payment, then a wire transfer can be an acceptable payment method, especially when speed is of the essence to avoid late fees. 

Paying by Money Order:

Cheap and easy to buy at numerous locations, a money order is one of the simplest and most convenient ways to pay a bill. However, if issues of lost mail arise, it can take months to resolve it. In addition, a money order receipt provides no proof that the collector received it or used it towards your bill. So the question to ask yourself when you use a money order is: How much do you trust the bill collector? 

Paying by Paypal:

It seems sometimes that you can use Paypal to pay for anything, but it is not widely used in the collection field. Still, if you can arrange for your collector to accept it, their fees for sending money are reasonable and their privacy protections are effective. However, there are also fees charged on the receiver's end, and don't be surprised if the collector charges you for them. 

Verification Matters

One of the things you should always do is verify that you owe the money in the first place. Statute of limitations run out, companies go bankrupt, things change, so don't just assume you owe money just because someone is demanding it. In most states, making a payment on a bill is considered an automatic admission that you owe it. Also, beware of scams by checking your state attorney general's office to make sure the collection agency is operating legally in your state. Never succumb to high pressure tactics that push you to accept an arrangement that you are uncomfortable with. 

Keep Good Records

Whatever arrangement you come to with your collector, get it all in writing. There is simply no substitute for good records when it comes to protecting your interests during the collection process. Always follow up if you have the slightest doubt about whether the payment was received or entered correctly. Also, don't be in a hurry to throw the records out when the bills get paid. Old bills can resurface, and you need to be able to prove you paid them. 
Dealing with debt collectors can be a challenge. Yet, if you are cautious in your method of payment, make certain all payments are verified and keep good records, you can successfully achieve your financial recovery. 
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Alice Bryant's picture

Alice Bryant is the Editor of Creditnet and a personal finance expert with over a decade of experience writing about credit cards, credit scores, debt repair, and more.

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