Settling with a debt collection agency

How to Settle Unpaid Bills with Debt Collectors and Collection Agencies

Settling with a debt collection agency

Settling with a debt collection agency

Settling with a debt collection agency


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How To Settle Unpaid Bills With Debt Collectors And Collection Agencies

Thanks for the info!

I haven't payed any of my debts that I owe in years and now I have been given a better paying job and now I can start paying off my collections how can I start plz help.

My question is this: Am i liable to pay? Or should i tell them to chase the bill payer?

Tips for Dealing with Debt Collection Agencies

For some consumers, every time the phone rings, they cringe at the possibility of a debt collector being on the other end. Falling behind on payments isn’t uncommon, but it’s a slippery slope when it comes to late fees and additional interest that begins to pile up. Once the request for money reaches the hands of a debt collector, there is no doubt that panic has set in. Here are several tips for dealing with debt collection agencies and their representatives.

Settling with a debt collection agency

Be Aware of What You Owe

Take the time to assess your financial situation, and learn more about what you owe. It might help to write down the various agencies and the amounts that are due. This ensures that you go into any conversation fully informed of what debt you need to address. If debt comes up that is not on your list, take a closer look. It could be the result of something like identity theft. According to Forbes, you can bring these issues to the credit bureau to have them taken care of.

Fair Debt Collection Practices Act

In addition to knowing what you owe, you also need to know that you have rights as a consumer. Time magazine points out that the Fair Debt Collection Practices Act keep you from being cursed at, contacted in the middle of the night, or contacted at work if you have already asked them to stop. If any of these things are happening, you have the ability to file a complaint with the Federal Trade Commission as well as the Attorney General of your state.

It is Possible to Negotiate a Payment Plan or Settlement

In some cases, it is possible to work with the debt collection agency to reach some type of settlement or a payment plan that allows you to pay back the debt in a way that you can afford to do so. This usually involves lots of conversations with representatives of the company, so it is important to keep documentation of the name of the person you spoke with and what was discussed.

Some companies will allow you to make payments on your debt in order to take care of it. If you want to get rid of the debt and get it off your credit report as soon as possible, consider talking to them about settling the debt. Whether a company will agree to a settlement often centers on the amount of the debt and how long it has been outstanding. Check for more information on debt collection and settlement opportunities.

If you have reached an agreement over the phone, you need the information the debt collection agency is offering in writing before going ahead with a settlement payment. This is important as it protects you from the money being used on a portion of your debt, leaving you with a remaining balance.

Many people are surprised to learn that they aren’t alone when it comes to those phone calls from debt collection agencies. While it can be scary and frustrating, there are ways to handle the situation and in some cases, create a settlement that allows the debt to be put to rest for good.

How To Settle a Debt with a Collection Agency

Settling with a debt collection agencyAre you getting harassing phone calls or letters demanding payment from a collection agency? Do you have collections on your credit report that you would like to remove? We are going to review the 5 steps to settling a debt and how to remove collections from credit report listings with the credit bureaus.

The very first thing, is to ask for debt validation. This is how you formally and legally ask the collection agency to prove the alleged debt is yours. The Fair Debt Collection Practices Act requires the collection agency to provide validation. You can ask for this, by sending a validation of debt letter to the collection agency.

The collection agency will have to respond with documents that show they own the debt account. You should get a response within 30 days of receipt. We recommend, you send your validation letters using certified mail and with return receipt requested.

If the collection agency does not validate your debt, then it must be removed from your credit report. And you are no longer responsible for repayment. If they do validate your debt, then you should move on to step two.

The statute of limitations governs most consumer debts. It places a maximum amount of time consumers are responsible for repayment. This is most commonly around seven years for many types of debt.

You should check the dates on your account. It is common, for collection agencies to ignore the statute of limitations. There are reports of debt collectors re-aging debt accounts. In other words, continuing to try and collect payment and report negative information on your credit report, long passed the statute of limitations.

Never pay the full amount a collection agency claims you owe. Sometimes collection agencies will even send demand letters. But, included will be a settlement offer for less than the total amount. For example, you may get a letter claiming you have a debt for $1,500.

But, the collection agency will accept 70% or $1,050 as a settlement payment. Experts, say you should begin your settlement offer at $.25 on the dollar. Using a $1500 debt, this would mean you would start your negotiations by offering $375 as a settlement.

Before you make your settlement payment, make sure to get everything in writing. It is key, that the collection agency put in writing that they will agree to send a deletion request to each credit bureau, in exchange for your payment.

We would encourage you to send a check or money order. In addition, it would be wise to write in the memo line: “In exchange for deletion from credit reports.” When the collection agency deposits your check, you’ll have a legally binding document to make sure the collection agencies delete bad credit about your account on your credit report.

It is a chess game dealing with collection agencies. Many consumers are not experts when it comes to the evolving laws of debt and credit. You do have rights and collection agencies regularly violate these rights and are fined by the Federal Trade Commission. Get a free credit consultation by calling toll-free 1-877-418-7596. For more tips and strategies with Dan Willis sign up for our free newsletter.

Get a FREE Credit Consultation 1-877-418-7596

Negotiating Debt Settlements with Collection Agencies

A Trees Full of Money reader writes in:

I’ve been following the debt snowball technique you mentioned in a previous article to help repay my debt. I have also been tracking my progress with your debt snowball spreadsheet and so far things have been going great! My question is, should my debt snowball plan include my old “charged off” credit card that is now with a collection agency?

Personally, I would NOT include any debts “owed” to a collection agency in your debt snowball. In fact, I would postpone the snowball and focus on cleaning up the charged off credit card first. Here’s how I would do it:

Consumer Tip: Make sure the statute of limitations has not run out on the debt. In other words, collection agencies only have a certain amount of time (varied depending on which state you live in) to collect on a debt. If the statute of limitations has run out on one of your “charged off” accounts, inform the collection agency. If they continue to harass you for your debt, tell them that you will sue them!

I would pay the minimum payments on all my other debts to keep them current and set aside any remaining money I had available in my bank account.

I would then call up the collection agencies you owe money to (or just wait until they call you) and ask them what your outstanding balance is. When you have about 2/3 of the balance saved make them an offer to accept this amount as “payment in full”.

If they say yes, make sure you get it in writing that they are accepting the money as “payment in full without recourse” before you send the collection agency a dime.

Getting the acceptance letter is very important. It prevents them from collecting any additional money from you in the future should they try to come after you, or “resell” the debt to another collection agency who tries coming after you!

If they say no to your settlement offer, tell them that’s too bad and that it will be a long time before they get any money from you because you are going to make the same offer to the next collection agency on your list.

Remember, collection agencies buy delinquent credit card accounts for penny’s on the dollar and will almost always accept less than what is actually owed on the debt! If they don’t accept your offer at first, keep offering it to them! Collection agencies will be calling you at least once or twice a week asking for your money. Just keep telling them that you tried to make a deal with them and they said NO and you’re now negotiating with another collection agency!

They’ll accept your offer eventually! Good luck, and let me know if you have any collection agency success stories in the comments below!

Too Much Debt? Download our free Trees Full of Money Debt Snowball Calculator and see how quickly you can pay off your debt.

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Personal experience says you probably only need to save about 50% of the balance before making an offer. I’ve settled a handful of accounts had while the CA was proposing a 50% settlement, I lowballed them and said I had a random dollar amount that equated to 24.7%. They took it!

Move forward a couple months. I had to call the original creditor to inquire about a 1099-C. The corporate collections office rep that I spoke with couldn’t keep her mouth shut… “Oh, yes. I see you settled this account for…. WOW! less than 25%?” “Yes, ma’am” “Wow, we don’t do that, that’s a great settlement you recieved.” “Yes ma’am, I was happy with the terms”

That’s great information Jeremy! I’ve jet to write the article, but I had a chance conversation with guy who was a supervisor for Bank of America in their “collections” department.

He says it’s not like it was 4 or 5 years ago. They realize people have substantially less money than they did in the past and (as you found out) they are acceppting ridiculously low settlement offers! 1/3 or less of the original balance!

Your example of getting a settlement for less than a 1/4 of the original balance is excellent!

Just make sure you get it in writing before you pay them a dime!

Any you’re right about the 1099-c as well! People often foget they are liable to pay taxes on the amount of their debt that was forgiven!

I respect and appreciate what this blog is doing for consumer education.

However, I would like to disagree with the advice on paying collection agencies. Under no circumstances should you pay a collection agency. Once something goes to collections it will stay on your credit file for the next 6 years (depending on jurisdiction) whether you pay it off or its still outstanding. Cut your losses and just wait for the 6 years to be up and the collection will vanish from your report as if it never happened. Trust me, during that period you will need all the cash you can get your hands on since no one will be willing to lend you any money.

Another reason for not paying outstanding collections debt is that by making a payment you have just reset the clock on the statute of limitations. For example if you had already done 4 years out of the 6 years and then decide to settle with a collection agency you would have just effectively bought yourself another 6 years of bad credit, giving you a total of 10 years of bad credit. This is because the statute of limitations runs 6 years from the date the last payment was made to the original creditor (not the day it was sent to collections).

A lot of collections agencies buy debt at pennies on the dollar and after failing to collect they usually sell it to another agency. In a span of 3 years your bad debt might have been traded by 3 different agents. This stuff is usually purchased in the form of bulk lists without the actual signed contract or the contracts are lost during all that paper shuffling. As a result most collection agencies do not have the records to prove that you actually owe them or that they were assigned agency authority by original debtor. I have written those clowns and asked them to prove I owe them any money or stop contacting me otherwise I would sue. No prize for guessing which option they went with. You could also contact the credit bureau and dispute the collection on your account and if the collection agency does not respond to the dispute with sufficient evidence within something like 30 days the credit bureau will have to erase the collections from your credit report.

However, the original debt to lets say the credit car company is harder to dispute unless it was a genuine error. It is with the original creditor you should reserve all your debt settlement negotiation techniques. Just agreeing with them on a reduced settlement amount will not do anything for your credit report but will only worsen it by restarting the statute clock. Caveat Emptor – this is not for the uninformed and faint of hear. What you need to do is offer to pay them on condition the specifically remove the bad mark on your credit file. Make sure that they agree in writing to withdraw any adverse reports they made on your file as a condition for cashing that cheque. You can google on line for sample letters that can be used for such proposals.

*This is just my own uninformed opinion and should not be taken as a substitute for professional legal or financial advice.

Thank you for taking the time to share your thoughts. I do have to say that I disagree with most of your assessment though.

First and foremost, you should pay collection agencies when you owe the money and they provide proof of the debt and proof they have a right to collect on it. This is called validation and is the first thing any debtor should request when they receive notice from any agency.

All credit accounts, good or bad, stay on your credit file for 7 years (not 6) from the date of last activity. The exception is a Chapter 7 bankruptcy which stays there for 10 years. The thing is that it stays 7 years from the date of last activity. So while to you and I the act of a payment is “activity” this is not so in the eyes of the law when regarding bad debts. The Federal Fair Credit Reporting Act clearly states that once a debt is charged off the date of activity stops.

You are correct the record vanishes upon expiration, BUT you still owe the debt! Waiting it out does not clear your obligation to pay. They can still attempt to collect the debt. In fact, I live in North Carolina, here in NC I believe our statute of limitations for bad debt is 3 years. Meaning a creditor would have to sue within that 3 years. Their failure to do so wouldn’t stop them from trying to collect, if fact they could still file suit, but I could have the case dismissed due to statue of limitations. In other words they have no legal action to take to force me to pay, BUT I would still technically owe the debt since it had not been paid or forgiven.

Again, on paying an original creditor a reduced amount, you are incorrect on it restarting the clock on the date of last activity. It does not worsen your credit score to pay them a settlement. A paid account, even if paid less than owed, scores better than an account that is not paid.

I have also read about the “Pay for removal” method. While this may work it is technically not supposed to be done. The reason being is your credit report from the reporting agencies is supposed to reflect events that actually occurred: good or bad. So if you were late paying the report should reflect that. If negative marks are removed then the account is not being reported accurately. I’m not saying that this isn’t done, I’m just saying that it is wrong and the creditor is going to have to lie to carry through with this agreement (and likely doctor their records so they continue to like going forward).

My words of advise are to avoid debt and payback what you do have on time so that you can avoid collections, settlements, and FICO scores!

Jeremy, I certainly agree that you still technically owe a debt even after it has been removed from your credit report and is now statute banned. Yes, you do make a good moral case to pay what you owe. However, morals aside, there is no way I owe you if you can not collect on the debt and it does not feature on my credit report.

Would you kindly explain how a paid collection is better than an unpaid collection from a FICO standpoint. It might make a difference when a human bank manager is analyzing your credit application and sees that you made an effort to rectify future mistakes. Unfortunately a lot of small credit applications are computer processed with barely any human intervention.

Regarding the length of time something stays on your credit record – I had clearly indicated in my first paragraph that this would depend on jurisdiction. I am writing from Canada and Equifax / Transunion will keep Canadian records for 6 years (at least in my particular province). Yes, you are right about North Carolina. What do you mean by the statement “So while to you and I the act of a payment is “activity” this is not so in the eyes of the law when regarding bad debts. The Federal Fair Credit Reporting Act clearly states that once a debt is charged off the date of activity stops.”

You might not agree with the paid for removal method from a moral standpoint but I have seen it work. You say if negative marks are removed then that account is not being reported accurately. Are you aware of the frequency of errors on the average credit report? I would rather an inaccuracy that benefits me than the system. Frankly, credit bureaus are not exactly in the business of maintaining accurate records but rather to service their customers – the lenders. If lenders can extract higher interest rates from you because of inaccuracies then the the system is working in the eyes of the banksters. There have been numerous investigative reports and documentaries into this issue. Did you know that credit bureaus have special VIP departments that monitor credit reports of influential people like congressmen, judges, celebrities to insure that there are no errors on such reports? These are people who are likely to raise a stink and have to be kept happy.

Therefore, morality takes a back seat when dealing with exploitative corporations. I am willing to use any legally acceptable means to take a swing at these guys.

I 100% agree with your last statement about avoiding debt completely. When I screwed up my credit I had to wait 6 years and during these 6 years no one would lend me money. However, this was a blessing in disguise. I started seeing a greater chunk of my paycheck remain in my account and not feeding credit companies. I also learned to pay cash for everything. During that time I ended up saving $15k to buy a car. This boosted my financial confidence and I said screw a mortgage – I might as well buy a house for cash (even though my debt has been wiped off my report and I now have a 720 FICO). Told myself the only difference between 15k and 150k is just an extra zero.

We’ll have to agree to disagree on the first topic. Whether or not I could collect from you, you would still owe me even after statue of limitations. I have no legal means, but from a pure technical standpoint, yes you still do owe the debt. If I loaned you $100 and you never paid me and 30 years had gone by if I never said, “Simon, I forgive your debt, you don’t have to pay it back” then you would still owe me the $100. True true true that I would never have a way to force the payment, but you’d still owe it. (Now I would be a fool to still expect repayment after so long) Settling with a debt collection agency

From a pure score standpoint, I’m not sure that an paid collection is better than an unpaid, I apologize if I was unclear in my comment. It looks better, as you said, when a real person looks at your report.

A think part of our misunderstanding comes from the fact that different countries handle things different. As you said, different jurisdictions. I was thinking you were talking about different States within the US. Canada may very will be 6 years and then vary based on province, I have no knowledge there. Within the US, there are Federal Laws that state items (with Ch 7 bankruptcy being the exception) stay on your credit file for 7 years. US Federal Law also clearly states that the date of activity is stopped once an account is charged off by the creditor. So payment after the charge off is not considered activity on the account as far as your credit report goes. I consider this activity, but the date on the report stays (or should stay) the same.

You are absolutely correct many, probably most, reports do contain inaccuracies. If you can get a pay for delete, awesome! My point is, at least here, they aren’t really supposed to do that, but then again, we did creditor (collections especially) start playing by the rules!

Thanks for the discussion!

Hello, I’m enjoying all of the resources on your website. My husband and I have been very careless with our credit and are now trying to dig ourselves out. Most of my debt in collections is from medical bills. In fact one agency has seven different accounts, one from each doctor’s visit. The visits are from 2006-2007. I don’t believe the amounts are valid, but at this point I just want to settle it. My question is should I just pay the amounts listed or try to negotiate? I’m worried that paying the accounts will change account dates to now. Do you know if paying these balances will help or hurt my score? I’m not sure how to proceed and would appreciate your thoughts. Thanks!

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