No one likes dealing with debt. It follows you and makes financial milestones harder to achieve. If you’re looking to be done with debt, whether it’s a few months old or a few years old, try to understand the options that are available to you.
Deciding to work with a collection agency to pay off of a collection account. Or work with the original lender to pay off a charged off account is a step in the right direction. BUT once you decide to do this, you need to keep one thought front and center in your mind.
You want this negative information removed.
That’s the main goal, and some collection agencies will say they can’t remove their trade line. Not true. They can’t delete the original CREDITORS trade line (we will get to this later) but they can remove their own collection trade line from your credit report.
Negotiating a settlement on a debt is a good way to quickly get things off your credit report. If paying off your debt in one lump sum isn’t possible, then arranging monthly payments that won’t break your budget is also a good route to take.
When negotiating, you always want to get everything in writing! Do NOT give them any money without having a letter from them, signed, and on their letter head that spells out the deal. If they put it back on your credit report at a later date, that letter will be your proof that you not only paid it off. But they had agreed to remove their trade line from your credit report in exchange for your payment. Always pay them by certified funds, that way they can’t claim your check bounced. Always make copies of any payment you send to a creditor or collection agency.
Splitting the Difference
When you begin negotiating with your collector, they will try to get you to pay off the entire debt. Because debt collectors are paid on commission, they want you to make a large payment relative to your total debt. If they know you can’t pay off the entire debt, they will offer a lower amount. Have a number you’d like to pay in mind. Tell them this number, they will counter offer with a higher number and offer to split the difference. Reject the offer and treat the difference as the new high limit; offer a number between your original number and the difference.
The Negotiations Process
Many collection agency follow a “settlement formula”. Depending on the collector, they may offer a settlement of 40 to 60 percent of the total debt.
That’s a good place to stat, if the debt is fairly recent. But when you are dealing with a collector on a very old debt, so old you are only paying it to qualify for a mortgage. Be more aggressive. Many of these companies that buy old debt pay PENNIES ON THE DOLLAR for your debt. As long as the collector DOESN’T KNOW you need this off your report for your mortgage. You can be very aggressive and offer them as low as 40-50% of what is owed. And they will usually go for it. If you are good with negotiations and can behave in PROFESSIONAL way. You can go as low as 20% and strike a deal!
Get Everything in Writing
Again, I can’t stress this enough. This is a very important step, make sure you keep records of everything. Phone conversations, notices, agreements, etc. Once you work out a payment arrangement, obtain a written agreement with the collection agency and the name of the person you worked out the agreement with. If you’ve agreed on making multiple payments, keep records of the payments you’ve made. On the day of negotiating, take note of the time and day, as well as the person you worked the deal out with.
- Avoid making payments with personal checks.
- Obtain a money order to avoid giving out your bank account information. Some shady collection agencies tend to do illegal things with bank information. However, if you trust the agency you work with, if they seem reputable, sending a cashier’s or personal check should be fine.
After settling the debt, if you are still getting calls or notices about it, send the proof you’ve obtained on settling the debt to the agency. This should stop all communication. If they ignore this, you can get a cease and desist order to force them to stop. Remember, you’re keeping everything in writing in case things go wrong.
Know Your Rights
Lastly, know that debt collectors must work within the confines of the law.
- They can’t garnish your wages without getting a court order.
- It’s illegal for the them to threaten you or use profane language against you.
- They aren’t allowed to call your employer for anything other than verifying that you work there and other general information about you. This is the same for friends or family.
If you are unsure a debt being attributed to you is yours, ask for debt validation. And lastly, debt collectors are not allowed to drain your bank account. There have been cases of shady debt collectors doing this when getting their hands-on bank information. This is highly illegal.
Dealing with debt can be a stressful ordeal. Also, be aware that when part of your debt is forgiven, you will still have to pay taxes on it. Collectors will likely send a 1099 to you at the end of the year.
If you don’t feel like you can negotiate a settlement on your own. Hire a seasoned credit counselor or negotiator to handle it. Having your debt paid for deletion is a good first step to reviving your credit.