Credit Rehab - Negotiating Debts

Ashley
Feb 10, 2017
5 min read

This information applies to valid collection debts, if there are errors in your report you must dispute the accounts with the bureau in which it was reported to as well as the original creditor.

In The Spirit of Taxes

When a debt is sold to a collections agency they want to collect on it as soon as possible because to them, time is money. Negative marks on your credit stay for 7 years with the exception of bankruptcy which remains on your report for 10. If you've been with me through these last few posts then you've already obtained your credit report, assessed your finances and set your priorities; this is crucial before making contact with the agency. Before we get started, understand that I am not a professional and these posts are based strictly off my own experience. When calling the creditor don't feel obligated to give every detail, be honest but minimal in describing your financial issues, emphasize your goals and avoid making payment arrangements; our goal is to pay the debt off not accrue more. The longer the account remains open you're being charged interest on the balance which is costing you. Here are a few options you have in settling the debt:

Offer to make payments. Even though I advise against this option you may not be in a position to negotiate the debt. Offering to make payments gives the creditor less incentive to settle the debt; they might ask you to fill out a financial questionnaire which I also advise against as you could be giving them more information than they already have. You'll hear this many times throughout this post; if any settlement is reached with the creditor it is important to get this agreement in writing. It is wise to include your credit report in negotiations such as having them remove negative marks like late payments, etc.
Lump sum or payment in full. If you're in a position to pay the balance then great but we are trying to resolve the debt and save you money so paying the account in full defeats the purpose. Not all credit agencies are the same, some agencies want 80-100% of the debt whereas others will take 50%. Rule of thumb is to stuck to your priorities and set an amount that works for you and stick with it. They are in it for the money so of course they are going to ask for a higher settlement, this is where you need to stand firm. The longer the debt is owed they are more likely to settle for even as little as a third of the balance because they have already given up. As stated before make your credit report part of these negotiations and request the agreement in writing. If the agreement is for less than you owe ask that it show satisfied in full and be removed from your credit file by submitting a Universal Data Form to all three credit bureaus. If the representative declares they don't have the authority to fulfill your request then stop your negotiations and ask for the name and number of the individual with the authority to fulfill your request.
Pay for delete negotiations. A strategy that goes against bureau policies and is not a requirement with collectors, goes along with the lump sum option. In this strategy you're simply exchanging payment for the deletion of the account on your report. You'd be required to submit this request in writing which I highly recommend doing anyways, when doing this be sure to get a return confirmation for proof of delivery, it might be beneficial to send the

request to the original creditor as well. Some collection agencies will tell you it is illegal to fulfill the request but according to the Fair Credit Reporting Act there isn't a requirement that they have to report data, nor specify any law in which they can not remove the record even if an error. This is simply just frowned upon as they rely on reporting debt for profit and is motivation for consumers to pay on owed debt. If your offer is accepted and yet the agency does not remove the file as agreed they are in violation of the FCRA, contact the bureau to provide them with a copy of the agreement and they should be able to remove it from your report. Click here for sample letters.

Goodwill adjustment for paid accounts. If you already paid an account then you've pretty much lost all bargaining chips. Your best bet is to submit, in writing, a letter to the creditor requesting an adjustment or the account be deleted from your file as a courtesy. These requests should be short and simple but descriptive in your goals and what you'd like to achieve, highlight any positive aspects, own up to your mistakes by briefly explaining what caused the account to be delinquent. I always say this, but you catch more bees with honey than you do vinegar; this simply means how you conduct yourself in this situation could be a factor in the outcome, obviously. Click here for a sample letter.

Getting items removed from your report can be simple if you know what you're doing, this requires that you familiarize yourself with the Fair Credit Reporting Act. Because you won't always get the results you're looking for I recommend seeking help from a credit repair company such as Lexington Law who I've used in the past and loved. These companies have mixed reviews as some charge high rates and produce no positive outcomes; use these companies with caution. I have used Lexington Law several times in the past and have nothing but positive results with them.

The best way to avoid this situation in the future is to avoid maxing your credit utilization, maintain positive financial habits, budget wisely, pay your bills on time and avoid non-payment on an account. If you are experiencing financial hardship, talk to your creditors and make payment arrangements before it goes to collection; given that you are honest and sincere most companies are willing to work with you. Keep in mind that consistent late payments will continue to damage your credit score, since our lives center around our credit score it is imperative that we learn how to maintain our credit as we never know when we will need to use it. You're far better off having credit now then not having it when you truly need it. Teach your children the responsibility and importance of credit, showing them now will allow for success in their future. Help make America great again.