by Gerri Detweiler (credit.com)
When you’re trying to put a collection account behind you, the biggest hurdles are coming up with the money to pay the debt and negotiating a payment plan or settlement that you can afford. Once you’ve accomplished that, however, the next question is, “How do you pay the debt collector?”
It may be trickier than you think. Some payment methods are riskier than others. The debt collector is likely to try to get you to pay using a method that’s best for him, but not for you.
“When dealing with the subject of paying debt collectors, many experts will always look to the Fair Debt Collection Practices Act (FDCPA),” warns financial consultant Damon Day. “While I agree it is important to know what collectors can and can’t do, I rely more on Murphy’s Law when advising clients about the best options for paying debt collectors. For those unfamiliar with Murphy’s Law, it is typically stated as: ‘Anything that can go wrong will go wrong’.”
With that in mind, here are the pros and cons of various methods for paying debt collectors.
Bank Account Draft/ACH
Most debt collectors ask you to provide information about your checking account so the payment can be taken right out of your account. It’s convenient, and often costs you nothing. But is it safe? That depends on how well you trust the debt collector.
“Never [pay this way],” says Mike Arman, a retired mortgage broker. “Autodebit is permission to access your account whenever they feel like it and then say ‘Oh, we made a mistake’—and do you think you’re getting any money back? They can also come back later for more, whether by ‘accident’ or design.”
Even if the debt collector does what he says he will, there’s another potential problem with this method. If you agree to pay off your debt in installments and your financial situation changes, or if there’s not enough money in your account to cover the payment when it’s due, you may find yourself on the hook for both the debt to the collector, as well as a new debt to your financial institution for overdraft fees.
In addition, this method “may be difficult to stop at the last minute because of processing cycles,” warns Bill Bartmann, President and CEO of CFS II and a veteran of the collection industry.
An alternative? Open a second checking account just to pay the collector. “Setting up a new checking account will allow a consumer to set up an auto draft or write a personal check to a debt collector without putting the rest of their finances at risk,” says Day. Of course, if you only have a single debt to resolve, that approach may prove to be an expensive hassle. If so, you may want to consider another method.
The general consensus? Avoid giving your bank account information to a debt collector unless you’ve set up a separate account for this purpose.