Home> Credit
Library
DEBT REDUCTION TACTICS: How
to settle collection accounts
Using negotiation
and restrictive endorsements to create a better credit rating
Your bills are piling up, your credit is suffering,
you may have old charge offs or accounts in collections that you
have no idea what to do with. Do you try to start a debt management
plan, do nothing, do you file for bankruptcy? There is an alternative.
Debt negotiations is widely
used to reduce overall debt by getting your creditors to reduce
the debt to 60% or so and wipe out the rest. This is different
than debt management so be sure you qualify. Debt
management simply reduces your monthly outflow giving you breathing
room and extending your debt payback period.
This is long term but is a good alternative to
bankruptcy. However the drop out rate is high. Debt negotiations
is lump sum settlements. The only requirement is that you have enough
money set aside to settle the debts. Sometimes however, a collection
agency or creditor may take payments while still using debt negotiations
and that is when you would use a restrictive
endorsement to ensure a good credit report at the final payment.
You can learn more about this procedure here.
Here's how it works
Say you have a debt for $4300.00 to Capital One. You are tired of
the fees, penalties and may find yourself getting no where in paying
off the debt. Capital One gets a request from a negotiator to settle
the debt for 50% or suffer the possibility of you filing for bankruptcy
and getting nothing. Which option would you choose if you were Capital
One? Take $2150.00 and call it settled or get a bankruptcy petition?
Some negotiations can also call for tiered payments over a
period of 6 to 8 months. A good negotiator can usually arrange this
type of settlement as well as lump sum offers because he has already
laid the groundwork to the creditor about their limited options.
What about your credit rating?
Well, instead of having a six year debt plan stretched out and reported
to your credit or a bankruptcy in your credit file, you will simply
have a debt with all your previous payment history still there to
show your good payments and the end rating will either be settled,
settled for less or paid depending on what the creditor agrees to.
Debt negotiations is becoming extremely popular because it's a faster
way to end debt traps and save your credit rating. With bankruptcies
rising (and becoming more difficult), creditors feel the urgency
to settle the debts and avoid a total loss.
Negotiating can help you avoid bankruptcy &
help to restore your credit rating. It is a great alternative
to bankruptcy
or being sued for unpaid
debts. Negotiating debts can cut the bill in ½ most of the time
saving you hundreds or thousands. Not every situation will work
in respect to negotiating but many issues can be resolved this way,
thus avoiding court proceedings or risking judgment. For
unsecured creditors, such as banks, credit cards, collection accounts,
auto or mortgage deficiency balances, the only action available
to them is through the courts and quite frankly they cannot afford
that type of action for unsecured debts.
Creditors don't like to sue. It's costly
People think a judgment
means full payment. All a judgment is, is a document showing just
cause to levy your assets
or take payment if they can find the means to do so.
However, a court of law does take into consideration a debtors'
ability to pay when awarding the judgment and the courts can set
up small payments based on your financial situation. A creditor
is much more likely to settle the debt than take you to court. For
this reason and an important one below, face the creditor! Hiding
can prolong the agony. Besides you may be judgment proof resulting
in nothing for the judgment creditor.
If you are sued
It is always better to show up . If
you don't, they win by default & you have no power. Even if
you owe the debt, show up, ask for a debtor’s examination of assets
and prove to the court & the creditor just how little money
you have, then you can ask for small payments right in front of
the judge! This shows your willingness to pay your obligations and
gives the creditor less power to haunt you. Work out
a payment plan while you’re in court, don't wait or put it off because
you will just dread it. Ask the creditor face to face what your
options are to negotiate a smaller amount. You have them there in
person and it dehumanizes you when you try this by phone. At least
in front of the creditor, they can see that you are sincere. If
this fact is brought to the attention of the entity suing you, then
they are less likely to hassle the court system if it will only
result in small payments anyway.
Your Attack plan
Despite popular belief, a collection agency is easier to deal with
than an original creditor most of the time. If you have a debt that
has gone to collections then negotiations should be done with the
collection agency. They are the source reporting the bad debt so
you will want remedy with the source. A standard settlement would
be to offer a reduced payoff in exchange for a more neutral rating.
This does not mean to ignore or not pay your current debts. However,
if you have collections, charge offs or judgments, then this is
an effective alternative. Be sure to get all agreements in writing
before you pay. Once you have an acceptable letter of the acceptance
and terms then you should pay the agreed amount.
See our sample
letters on how to write a settlement offer. Your goal is to
limit the impact of a bad debt to your credit. If the debt is already
listed as a charge off or collection account then you will gain
absolutely nothing by paying it without negotiating a better rating.
It only serves to benefit the creditor on a debt that has already
been placed for collections or charged off. If you get shot down,
then attempt it with someone else within the company. Collection
agents figure if they wait long enough, you will give in.
Learn
as much about the collection agency as you can. Many times you
can find out that they have had complaints against them or are in
the middle of a bankruptcy. Use this to your advantage. We recommend
only negotiating with whomever is reporting the debt(s) to your
credit. If you do not then the creditor may agree and cash your
check and the collection agency will list it as a paid charge off.
This happens every day. If both are reporting it but the creditor
has the ultimate say, request that they cancel the debt back from
the agency before you pay it.
Restrictive Endorsements
Some people seem to think that if they send a payment with a restrictive
offer written on the instrument, it will be solid. This is not
true. A creditor has a right to cash a check for a balance due.
To avoid this and avoid ending up with a paid charge off, do the
following.
Send a letter to the creditor or collection agency.
Offer 50% of the debt in exchange for a more neutral credit rating.
Give them at least 30-45 days to object. If they do not, send your
payment with another letter
attached stating that this is the restrictive payoff that you informed
them of at least 30 days ago. Put the agreement on the back of the
cashiers check or money order. Do not use your own checking account.
State in this letter that you offered a settlement and that they
had ample time to object. If they cashed the check and remained
silent- you do have a deal. Be sure
to view state laws however.
Include a clause that states: You did not
object to my restrictive offer over 30 days ago so cashing of this
check will constitute that you agree. Before you send your
offers, get the address and name of the higher up. A CEO, VP, Credit
Manager or Supervisor. Send it directly to their attention AND Fax
a copy. This shows you sent it certified mail and by facsimile.
You have now created an Accord
and Satisfaction (new contract).
Don't forget VOD
If the debt is due and has been verified even through the credit
bureaus then the above plan is a great way to increase your odds
of a better credit rating and to pay less but don't overlook the
power of the VOD- validation
of debt. A collection agency must allow you to validate the
debt so before you begin to negotiate with any collection agency
or third party debt collector- exercise your right to VOD.
You may be able
to find proof that the debt is in deed unverifiable and not have
to pay it at all! Collection accounts are sold two and
three times so odds are good that the records are missing. You owe
it to yourself to totally understand and use
VOD before settling any debts. We discuss this topic at lengths
in our member area and have tactics using VOD and the FCRA. It's
called VODCRA and
it can IMPROVE YOUR ODDS of cleaning up your credit!
|
