Settling a Debt With a Collection Agency

Settling a Debt With a Collection Agency

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If you find yourself in a situation where you need to negotiate or settle a debt with a collection agency, understanding the “how tos” is vitally important. By understanding how to go about this correctly, you can save yourself vast amounts of money and, in the process, begin to repair your credit.

If you find yourself in an increasingly tough financial situation, it is best to contact the creditor. Attempt to arrange a payment plan with them before things proceed further.

Being unable to arrange a payment plan with your creditor will ultimately cause increased anxiety as a collection agency will probably be assigned your debt. In addition to this, your credit score will spiral downward. It will be extremely helpful at this point if you understand the process of debt settlement.

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It is important to know and understand that the collection agency probably purchased your debt at just a few cents on the dollar. Most often, collection agencies purchase debt at 8 cents to 12 cents on the dollar, so a debt of $500 might be purchased for as little as $40 or a debt of $6,000 may be purchased for as little as $480.

This, however, does not mean that the collection agency will be amenable to settling for a trivial amount. Their business is to make money and they only do that by getting as much as they can from you. They may very well be nasty to you and possibly threaten a legal action against you.

Collection agencies, however, are hesitant to actually launch a law suit for what amounts to a very small amount of money to them. A law suit represents energy, time, and money so a collection agency will normally stop short of this recourse. This does not mean that you should ignore any communication they attempt to have with you. It is best to attempt to settle the account.

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If you have the funds to offer a lump sum payment, make an offer to the collection agency. Twenty-five percent (25%) of the original amount owed is a good starting point for settlement of the debt in full. Then, wait and see if the collection agency counters your offer. This process may go back and forth a few times but, eventually, you may come to an agreement. Be sure to keep copies of all correspondence to and from the collection agency. Also, make sure that any agreement you come to is in writing.

Try to negotiate a payment plan with the collection agency if you don’t have a lump sum to pay. The matter will likely not go to court if the collection agency can see that you are making an attempt.

While you are negotiating a lump sum payment or a payment plan, you want to be sure that you obtain, in writing, the assurance that your debt will be “deleted in its entirety” from your credit history. A collection agency can retain this collection entry on your credit report for up to seven years so you want to make sure that it will be removed upon payment of the debt as agreed.

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To summarize, approach the collection agency confidently and make an offer. Do not allow bullying to sway you, stand firm. However, you must keep in mind that you do owe this debt and collection agencies earn their bread and butter by collecting debt. In light of this, try to be fair when negotiating, but obtain the best rate possible. Additionally, do not ignore any communication you may receive from a collection agency. If you follow the recommendations in this article, you may be able to clear up that outstanding debt.

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