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’.”

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.

Personal Check

Mailing a  personal check is fairly cheap: it only costs you the price of postage, plus  certified mail fees if you want confirmation that your check was received.  (That’s recommended, of course). You’ll also have your cancelled check as proof  of payment. It’s not terribly fast, though, and for that reason it may not be  at the top of the debt collector’s list of preferred payment methods. Plus,  you’re providing the collector with information about your checking account.

A safer  alternative is to use your financial institution’s online bill pay service.  Gregory B. Meyer Community Relations Manager at Meriwest Credit  Union explains, “Your online banking will send them a check that is  basically guaranteed funds like a cashier’s check, but your personal info, like  your account number, does not show on it.” Ask your credit union or bank for  details.

Tip: If  you haven’t already set up online bill pay through your financial institution,  it can take a few days to get started. So don’t wait until you’ve struck a deal  to sign up.

What about  postdated checks? Under the Fair Debt Collection Practices Act, debt collectors  are not supposed to deposit postdated checks before the date on the check (or  even threaten to do so). And if the collection agency accepts a postdated check  that’s dated for more than five days in the future, it is supposed to notify  the consumer in writing 3-10 business days before depositing it. However, not  all debt collectors play by these rules.

“Collectors  will say that (sending postdated checks) is part of the terms. It is not true  and you can negotiate that,” says Leslie Tayne, a New York attorney who specializes in consumer debt resolution.

The  general consensus? Avoid postdated checks. Use a personal check only if it  comes from a separate account you’ve set up to pay the collector, or use your  financial institution’s online bill pay service.

Debit Card

Debit  cards access funds in the checking account to which they are tied. So the same  warnings that apply to bank account drafts/ACH apply here. If the amount  charged to your debit card is wrong, or if there are multiple withdrawals when  you only agreed upon one, you’ll be fighting the collector to get that money  back in your account. While consumers generally are protected against  unauthorized withdrawals under the Electronic Funds Transfer Act, it may be  difficult to prove the amount wasn’t approved since you gave the debt collector  your debit card information.

The  general consensus? Avoid giving a debt collector your debit card number.

Credit Card

Paying a  debt collector with a credit card won’t make the debt go away. Instead, you  will have new debt—and additional finance charges. “Paying one debt off while  racking up new debt is an oxymoron in itself,” warns Howard Dvorkin, founder of Consolidated  Credit Counseling Services. “If a person truly finds themselves in a  financial situation where they are borrowing from Paul to pay Peter they need to  reach out for help.” If you cannot pay a debt collector without taking on new  debt, seek help from a credit counselor or bankruptcy attorney.

The  general consensus? Don’t use a credit card to pay a debt collector.

Prepaid Card

Any  collection agency that accepts debit or credit cards can accept a prepaid card.  With a prepaid card, you simply load money onto the card and then use the card  to spend that money.

All  prepaid card issuers charge fees. Some some have relatively few fees, others  charge a lot of different fees. Give yourself time to shop for the right card  if you choose this option.

On the  plus side, most prepaid cards only spend money you load on this account so you  don’t have to worry about overdraft charges if the debt collector overbills  you. And your personal financial information remains private.

However,  you may also have trouble proving you made the payment if you use one of these  cards over the phone.

The  general consensus? A prepaid card used solely to pay the debt collector can be  a relatively safe payment method, but be sure to look for a low-fee card and  keep a record of your payment.

Money Transfers

Money  transfers include services like Western Union or MoneyGram, as well as wire  transfers directly from your bank or credit union account to the collector’s  account. Debt collectors like this method because they can get paid quickly.  Fees can be expensive, though.

On  September 12, 2011, I researched fees for sending $750 to a debt collector in  the U.S:

Western  Union:  I used the “estimate price” tab on their website to research how much it would  cost to pay NCO Financial from Florida. Fees ranged from $44 to $49, depending  on whether I planned to go in person to a Western Union office or pay by phone.

MoneyGram: I couldn’t find a  cost estimator online, and was directed to a local 7-11 store for information.  When I called 7-11, the clerk told me she didn’t know the cost, and instructed  me to call MoneyGram for an estimate. By phone, I was told the fee was $9.99 to  send the money to NCO Cap One.

Bank  of America:  Their website lists a $25 outgoing domestic wire transfer fee (flat fee, not  tied to a specific amount).

Several  sources raised concerns about the ability to confirm that a debt collector has  received payment by one of these methods. Western Union states on its site that  “Western Union guarantees to provide a transaction identification number that  can be used for bill payment tracking purposes or your fee will be refunded.”  However, the company did not respond to my query for more information about  tracking payments by the time this story was filed.

When I  called MoneyGram as a prospective customer, I was told I couldn’t send payment  to a debt collector unless the company was already set up as an approved  biller.

On the  banking portion of its website, USAA says:

If a  wire transfer isn’t received or needs to be researched because of issues, you  can request an investigation (sometimes called a tracer) for $15 per  investigation. In addition, some receiving banks may also charge you additional  fees for requesting an investigation or tracer.

And watch  out: money transfers are the preferred payment method for scammers, warns the  Federal Trade Commission. In a consumer guide, it says:

Why do  scammers insist that people use money transfers? Because it’s like sending  cash: the scammers get the money quickly, and you can’t get it back. Typically,  there’s no way to reverse a transfer or trace the money, and money wired to  another country can be picked up at multiple locations, so it’s just about  impossible to identify or track someone down.

The  general consensus? Money transfers can be expensive, and potentially risky.  Before paying a debt collector via money transfer, make sure you understand  exactly what kind of proof of payment you will receive.

Money Orders

Money  orders are relatively inexpensive and can be purchased at a post office, bank  or credit union and most convenience stores, grocery stores, etc.

Fees are  usually quite low. At Wal-mart they are sixty cents. If you buy one at the Post  Office, it will cost $1.10 to send up to $500, and $1.55 to send $501-$1000.  You’ll have to mail the money order, so plan to add fees for postage and proof  of delivery.

Cons? It’s  “damnably frustrating in the event the money order is lost—replacement can take  90 days or longer,” warns Bartmann. Western Union, for example, charges a $15  fee to replace a money order if the customer has the receipt and $30 if the receipt  has been lost.

It’s also  difficult, if not impossible, to prove the collection agency cashed the money  order you sent. You will generally have to rely on your money order receipt and  proof of delivery if the collector says you didn’t pay. The U.S. Postal Service  warns on its website that you can’t stop payment on postal money orders, and  that you can’t “track or trace a money order in the mailstream.”

The  general consensus? Money orders are cheap and help you maintain financial  privacy, but it may be difficult to prove you paid the debt.


Most of  the sources I spoke with had not heard of debt collectors using Paypal to  collect. Bartmann observed, “Not many collection agencies can receive  remittances by PayPal but I am hard put to think of a reason why a collection  agency should not allow that payment method. Our agency has used PayPal for  both payments to others and payments from others. We have been pretty happy  with it.”

You can  send money for free from your Paypal balance or your bank account. If you want  to use a debit or credit card, the fee is  2.9% + $0.30. And “you just KNOW they are going to ask you to cover their  fee to receive money in addition to what they claim you owe,” says Arman.

The amount  you can transfer to the collector may be limited by a “sending limit”—check  your account. Also keep in mind that it can take several days to get set up on  Paypal to send money.

On the  other hand, the debt collector won’t have information about your bank account,  and if you set up a payment plan, Paypal states you can stop a recurring  (“Preapproved”) payment anytime up to three business days before it is  scheduled to debit from your account.

The  general consensus? Paypal may be safer than letting the collector take money  from your bank account. But determine whether fees will be charged, and if so,  who pays them.

More Tips for Paying Debt Collectors

Verify  First, Pay Second. Make sure you actually owe the debt, and that it’s  not outside the statute of limitations. “Paying any portion of the debt is  generally considered an admission of the debt and will typically restart  statutes of limitations,” says Rob Drury, Executive Director, Association of  Christian Financial Advisors.

And in  this era of debt collection scams, it’s a good idea to verify that the  collection agency actually exists and you’re not being targeted by a scam. Ask  for verification of the debt in writing, then check with your state attorney  general’s office to find out if the agency must be licensed in your state, and  if so, that it is. If licensing is not required, try checking with the Better  Business Bureau to find out if the agency is registered there.

Don’t  Cave In To Pressure. A collector may tell you that you must use the payment  method he prefers. Or he may use a high-pressure tactic such as telling you the  offer expires very quickly, or threatening to mark you down as “refusing to  pay” if you don’t use the payment method he prefers. If you need time to figure  out how to pay, stand firm. Refusing to use one of the payment methods listed  in this article is not illegal. Take notes of what the debt collector says in  case you need to consult a consumer law attorney.

Get  It In Writing.  If you decide to allow a bill collector to take money directly from your  account, make sure you have a written agreement from them first. “It must be in  writing with clear terms signed by both parties,” says Daniel Gershburg, a New York bankruptcy  attorney.

“Have them  email, fax, or mail a letter to you stating the amount they are accepting and  how that money will be used: payoff in full, paid off for a lesser amount, or  completely removed from your credit report. Take a copy of this letter and  attach your check to the letter so there is no question of what should be done  once it is received at the collection agency,” suggests Meyer.

Keep  Good Records. “Regardless of payment method, consumers should always keep documentation of  their payment (i.e., bank records, receipt, statements, etc.),” says Mark  Schiffman, Director of Public Affairs for the credit and collection industry  trade group ACA  International. Keep these records in a place where you can access them  easily, and indefinitely. Debts sometimes resurface years later.

Negotiate  Fees. “Watch for fees related to payments,” says Tayne. Find out of there is a check  by phone fee or other fees related to a particular payment method. If so ask  for it to be waived.” Often it can be.

Follow  Up. “I cannot stress this more, make sure the payment was entered correctly or  received,” says Tayne. “There are so many times when the person taking the  payment makes a mistake and the payment does not go through. You want to make  sure all payments are received and applied and that the settlement is still  valid.”

Make  It Official. Want to be extra safe? “Pay your attorney and have your attorney send them a  law office check. “Even the dumbest bill collector knows  better than to screw around with a check drawn on “The Law Office. There is also an unassailable audit trail, and the bill collector never gets  ANY of your account information.” Of course, that’s assuming you can afford to  pay a lawyer, which may not always be the case if you are struggling to pay  your bills.

Credit.com provides readers with unique  insight, helpful tips and straight answers about their financial world. Our team  of reporters and experts explore credit, loans, debt, saving, and identity theft  topics, all designed to help you make smarter financial decisions. Visit  Credit.com to sign up for your FREE Credit Report  Card and find out where you stand today!

Gerri Detweiler  Credit.com’s Personal  Finance Expert, Gerri focuses on financial  legislation, budgeting, debt  recovery and consumer savings information.  She is also the co-author of Debt  Collection Answers: How to Use Debt Collection Laws to Protect Your Rights,  and Reduce  Stress: Real-Life Solutions for Solving Your Credit Crisis.