Can a debt collector deny the option to make a payment on the principal after making your first payment of the month?

[Steven4200]

I live in Phoenix AZ and the collection agency in question is located in Tucson AZ. After I was served, I contacted them and worked out a payment plan to keep things out of court. During the conversation I ask them if it was possible to make a second payment during the month to the principal amount of money owed. The person I talked to said “we don’t do that” … as far as I have ever seen and heard that is a normal thing people do to pay down a debt faster. I am trying to figure out if this is acceptable and legal. I talked to friends and family about it and they said that it doesn’t seem normal. Thanks in advance for any advice on the subject.

Regards,
Steven

 

[Zigner]

Send them another check - they won't turn it down.

 

[Steven4200]

Yeah that’s the issue though, if I send another check I want it to be to principal only so they cant take out 80.00$ in interest. I have no doubt they would be happy to take the check but if I paid double interest in one month that doesn’t seem normal. I cant justify breaking myself to send them a total of 160.00$ in interest.

 

[Zigner]

Then set the money aside and send it when it's due.

 

[adjusterjack]

Yeah that’s the issue though, if I send another check I want it to be to principal only so they cant take out 80.00$ in interest. I have no doubt they would be happy to take the check but if I paid double interest in one month that doesn’t seem normal. I cant justify breaking myself to send them a total of 160.00$ in interest.

Unless your additional payment is made the same time as you regular payment there will always be interest applied first. I just don't know where you figure another $80.

I'll give you an example. Let's say you owe $5000 and you've agreed to pay $200 per month at 6% interest.

Let's assume you agree to the $5000 today 5/15 and make your first payment today. It goes to principal. One month from now, 6/15, you owe $4800 plus one month's interest of $25.00 = $4825.

You pay $200 and your new balance is $4625. One month after that, 7/15, your balance is $4625 plus one month's interest of $24 (I'm rounding off) = $4649.

Now let's say on 7/1 you decide to pay another $200. On 7/1 your balance is $4625 plus 2 weeks interest of $12 = $4637. You pay the $200. Your new balance is $4437. Two weeks later, 8/1, your balance is $4437 plus 2 weeks interest of $12 = $4449.

That's how debt balances are amortized. YMMV depending on whatever deal you struck with the collector. Any principal payment will always be applied to accrued interest first and then to principal.

 

[Steven4200]

Unless your additional payment is made the same time as you regular payment there will always be interest applied first. I just don't know where you figure another $80.

I asked them for a statement. On the statement it showed that out of every 200.00$ I sent them 80.00$ went to interest; that is how I came up with that figure. Thank you for your detailed response it helped to shine a little light on situation.

 

[adjusterjack]

Hmmm, it's possible that the $80 from each payment is going to interest arrears - accrued interest from the day you defaulted to the day you made the payment agreement.

Let's say you owed $5,000 and you defaulted two years ago. In that two years, for example, $2000 in interest accrued. $80 per payment is applied to the $2000 interest and $120 goes to the $5000.

Any payment would be applied like that, you wouldn't have any choice. But that shouldn't deter you from sending extra payments. You still have to pay down the accrued interest as well as the balance.

Using my example you owe $7000. Shouldn't matter how each payment of $200 is allocated. You have to pay down the $7000.