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Advice on Settling Debt and Credit Scores
Friday, Mar 13, 2009
Question: Hi Bill, I have some questions for you. Thanks in advance.
1) I have one charged-off account whose the balance is $750. The collection agency called me and offered to settle the debt with a one-time payment of $600. Ironically, I read somewhere that debt settlement is bad if I care about raising my credit, so I insisted on making monthly payments to pay the full debt amount. The agent said that there's not much difference between paying in full and settlement once my account has been charged off, and that the best thing to do is to pay as soon as possible. If I choose to pay in full, it'll take about 4 months. In addition, each time I make payment I'll be charged for a $5 "check-processing" fee, something I don't understand because the payment method will be monthly direct withdrawal from my bank account. What should I do now: paying in full, paying the settled amount or negotiating to reduce that amount? I don't know how to negotiate with a collection agent.
2) I have another small credit card debt (also charged off.) But I hadn't known that before so I made a full payment to the original creditor via the electronic system. So my account balance changed from $0.00 (b/c of the charge-off) to a negative amount. Do I need to find out the collection agency, pay them again and ask for a refund from the original creditor? Many thanks, Liz
You also mention that you don't know how to negotiate with a creditor, so here are a few
suggestions I hope you find helpful:
Be polite. This will get you further than anything else when negotiating with a creditor. After all, collection agents are humans too. They spend most of their time dealing with angry and difficult customers, so you may find that by being courteous the creditor will be more likely to give you what you want. Like my grandmother used to say "You'll catch more flies with honey than vinegar."
Be specific. Always let the creditor know that your goal is to clean up your credit and that you would like to have them remove their negative item from your credit report as part of your payment agreement. They don't have to grant your request, but if you don't ask, the answer is always no.
Be flexible. Let the creditor know that you are willing to compromise. Creditors need to meet their objectives, too. If you present a "win-win" situation, then the creditor can feel good about the negotiation.
Be realistic. Some creditors will refuse to negotiate. Don't take it personally. Wait a few months, and then try again.
Be persistent. The credit repair process takes time and effort. And as with many things in life, hard work and persistence will help improve your chances of success.
Get It In Writing. It's important, when resolving a debt, to always get the agreement in writing before sending your money, and to have them also send a letter confirming that the account is resolved and at a zero balance once they receive your payment. This is the proof you'll need in cases where a creditor fails to properly report your payment to the credit bureaus or tries to make additional claims on the account in the
Be polite. This will get you further than anything else when negotiating with a creditor. After all, collection agents are humans too. They spend most of their time dealing with angry and difficult customers, so you may find that by being courteous the creditor will be more likely to give you what you want. Like my grandmother used to say "You'll catch more flies with honey than vinegar."
Be specific. Always let the creditor know that your goal is to clean up your credit and that you would like to have them remove their negative item from your credit report as part of your payment agreement. They don't have to grant your request, but if you don't ask, the answer is always no.
Be flexible. Let the creditor know that you are willing to compromise. Creditors need to meet their objectives, too. If you present a "win-win" situation, then the creditor can feel good about the negotiation.
Be realistic. Some creditors will refuse to negotiate. Don't take it personally. Wait a few months, and then try again.
Be persistent. The credit repair process takes time and effort. And as with many things in life, hard work and persistence will help improve your chances of success.
Get It In Writing. It's important, when resolving a debt, to always get the agreement in writing before sending your money, and to have them also send a letter confirming that the account is resolved and at a zero balance once they receive your payment. This is the proof you'll need in cases where a creditor fails to properly report your payment to the credit bureaus or tries to make additional claims on the account in the
future. You can ask them to send the agreement letter by mail or fax, which most will be happy to do to ensure your payment. Make sure their offer letter is on the creditor's letterhead & signed. Also, while negotiating with creditors, it never hurts to ask for the negative item to be deleted in return for payment.
Finally, on the account you previously settled with an original creditor, but are now being asked to pay again by a collection agency. Do not pay twice. Find the check, bank statement, or some proof of your payment along with the any other documentation regarding that account and then contact the original creditor and explain that they need to recall this account from the collection agency and for them to kindly remove this inaccurate item from your credit report. If they are un willing to do so, your next step would be to dispute it directly with the credit bureau showing the item. The FTC has a terrific website covering credit reports, including sample forms and instructions on how to address inaccuracies on your report (the reports are infamous for containing errors). Visit www.ftc.gov for more information.
As you undertake all this, it is also a good idea to keep an eye on your credit report and to make sure that the changes in these accounts are accurately reflected in your report. You can receive a free copy at www.annualcreditreport.com . (This is the only official website for getting a free annual credit report from all three credit bureaus – beware, as there are a lot of other websites offering “free” reports that are not, in fact, “free.”).
Keep up the good work and eventually you see your credit score rise.
Best,
Bill
www.bills.com/blog/
Finally, on the account you previously settled with an original creditor, but are now being asked to pay again by a collection agency. Do not pay twice. Find the check, bank statement, or some proof of your payment along with the any other documentation regarding that account and then contact the original creditor and explain that they need to recall this account from the collection agency and for them to kindly remove this inaccurate item from your credit report. If they are un willing to do so, your next step would be to dispute it directly with the credit bureau showing the item. The FTC has a terrific website covering credit reports, including sample forms and instructions on how to address inaccuracies on your report (the reports are infamous for containing errors). Visit www.ftc.gov for more information.
As you undertake all this, it is also a good idea to keep an eye on your credit report and to make sure that the changes in these accounts are accurately reflected in your report. You can receive a free copy at www.annualcreditreport.com . (This is the only official website for getting a free annual credit report from all three credit bureaus – beware, as there are a lot of other websites offering “free” reports that are not, in fact, “free.”).
Keep up the good work and eventually you see your credit score rise.
Best,
Bill
www.bills.com/blog/
Also, make sure to get a free financial health check-up with Bills IQ!
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1. Posted by Harold DeJesus on Sunday 15th March 2009 06:16
due to my circumstances the collection agency is not responseing to my payments. Should I stop making payments. I do not know what to do. collection agencys, nco financial systems, forster $ garbus and cohen & salmowitz.
2. Posted by Bill on Monday 16th March 2009 08:53
Be careful, if this is a payment arrangement that you had setup with the collection agency, then stopping it might be considered a breach of your payment agreement. But, in case there was no agreement, and you were making these payments on your own accord, then you could stop making these payments. You also mention a legal firm in your question which makes me believe that this case might have gone to a legal status, if that is the case, then please consult with an attorney before you stop the payments.
3. Posted by felicia on Tuesday 24th March 2009 08:30
what if i had all ready mad a settledment but it is still on my credit as a charge off.how can i get that off.
4. Posted by Bill on Tuesday 24th March 2009 13:42
Felicia - The charge off is part of the account payment history and cannot be changed, as long as the account shows that it is settled with no balance due, you should be fine.
5. Posted by James on Wednesday 4th November 2009 16:36
I have an old credit card debt I need to pay off. My credit report shows me owing UNIFUND (the collections company) $2400 but the amount of the original debt was $1000. What should I do?
6. Posted by Bill on Wednesday 4th November 2009 16:58
Collection agents buy debt for less than its face value, so keep that in mind when a debt collector talks about fees, interest, and other add-ons to the original debt amount. Get a lump-sum together and make the collection agent an offer. See Debt Negotiation and Settlement Advice to learn some tactics for working with collection agents. You mentioned the debt is old. It may be older than your state's statute of limitations. See Collection Laws and Statute of Limitations to learn the rules in your state. Just because the SOL in your state for that debt may have passed, that does not mean that the creditor has lost the right to ask you to pay the debt -- the passage of the SOL is merely a defense you can raise if the creditor sues you to collect on the debt. If the SOL has passed, you have leverage you can use over the collection agent. You can say to the collection agent, "You can sue me to collect on the debt, but I know the SOL has passed and that is a defense I will raise that will cause the judge to dismiss the case." Back to your question: Arm yourself with negotiation tactics in the link I provided above, and understand your rights regarding the SOL. Give the collection agent a lump-sum offer of 10 cents on the dollar, and take the negotiations from there.