Do NOT Pay Collections Companies

            The first thing we all hear when learning how to repair our credit is to pay off old debts so they will be removed from our report.  That is partially true.  You do want to pay off the credit cards.  Pay off anything that is still open.  However, DO NOT pay the collections companies. It can actually harm your credit in the long run and make you use money that could be spent elsewhere….for example towards rent or food.  I know this advice is contrary to just about everything people will tell you (especially the collections companies).  But I’m actually going to tell you why.

            When the credit card companies turn over your outstanding balance as a charge-off, what this means is that they’ve cut their losses and sold your account for pennies on the dollar.  Then, they’ve reported this on their year-end business taxes as a loss or write-off.  In turn, they’ve received money from the collection companies as well as a tax write-off from the government.  They really aren’t losing anything except maybe the extremely high interest that they’ve probably added to the actual balance you owed them.

            Once these collection companies buy your debt from the original creditors, there is no longer a valid contract to pay.  You never had a contract with company “X”.  You had one with your credit card company.  They will call and they will try to scare you into giving them the money.  Don’t buy into it.  Unless they are the government, they can’t do anything.  If you answer the phone when they call, do not tell them your name.  When they ask to speak with you, just ask who is calling.  They will tell you and then all you have to say is that they have the wrong number.  If they keep calling you, tell them that they will be hearing from your lawyers on grounds of harassment.  

            Now that I’ve gotten off track, let’s get back to the reason you don’t want to pay these companies other than you truly no longer owe the debt to anyone.  Once you pay them anything (even a penny), the statute of limitations starts all over again on your credit report.  Everything that is old must come off within a certain number of years.  It just automatically happens, and if it doesn’t, all you have to do is bring it to the notice of the credit bureau.  Once you pay the collections company anything, this is seen as a new debt. 

            The best thing to do if you notice any of these collections accounts on your credit report is to dispute them with the credit bureau.  Nine times out of ten, they will remove them.  If they don’t then just wait a few months or so and dispute it again.  They will eventually drop them.  

            I’ve seen people get so scared from believing they will be sent to prison that they forgo buying food in order to pay them.  And trust me when I say that the companies do not give one little care about whether you can buy food or not.  All they want is your money (that you don’t owe them anyway).  Please, please, please don’t fall into the fear trap that these collections agencies will try to lay on you.