"I had a client who paid a collection company for an account for a phone bill and they never recorded the payment," explains Kelly. "The phone company got the account back as uncollected and then (it) was sold to another collection company. We had to prove it was paid. This client had the old bank statement showing it cleared her bank but it was a huge hassle, time-consuming, and the new collection did appear on her credit report, which has since been removed."

It's also usually best to pay with a certified check from your bank, or using online bill pay from your bank account so you have a record of the payment without providing the agency details about your checking account.

If you are settling a debt for less than the full balance, it's essential that you get a letter from the collector detailing the terms of the deal, and confirming that no further balance will be due before you make a payment. "No letter, no deal, no exceptions," insists Charles Phelan, founder of the DIY debt settlement firm ZipDebt.com.

Step 5: Monitor Your Credit Reports

If your goal in resolving these accounts is to improve your credit scores, you will likely be disappointed. Paying collection accounts does not remove them from your credit reports. And, with the exception of the new VantageScore 3.0 model, paying a collection account isn't likely to help boost your credit scores. These accounts are considered negative, paid or not.

This can be incredibly frustrating. One of our readers, "Alyssa" wrote on the Credit.com blog:
Hello, I recently (within the past month) paid off two credit card accounts that ended up in collections with the intent to fix my credit score by doing so. Now that I have read this, I feel foolish to have even paid them at all. How can I repair and build my credit score now? Since paying off my collection accounts would not help anyway.

Even if taking care of these bills won't immediately help your scores, there are still advantages to resolving them:
  • No more collection calls or letters for that debt; and no new accounts if the balance is sold to a new agency.
  • You don't have to worry about being sued for the bill. (This is less of a worry for older debts where you can raise the statute of limitations as a defense if you are taken to court.)
  • You may be able to get loans that are off-limits if you have unpaid collections on your credit reports.) For some mortgage loans, for example, the lender may require you to pay a collection account as a condition of getting the loan.

Of course you have to weigh those advantages against the money you'll spend. But if you do decide to pay them, it's a good idea to monitor your credit reports and scores to make sure the accounts are listed as paid, and to make sure that no new ones appear on your reports. In addition to AnnualCreditReport.com, which we mentioned above, you can get an easy-to-understand overview of your credit standing, along with your credit scores, for free using Credit.com's Credit Report Card.