Understanding how to settle a debt with a collection agency is very important. Understanding this process can save you a lot of money and help you to repair your credit to boot.
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.
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.
In spite of this, settling for a small amount will not be the collection agency’s idea. Getting as much as they can from you is, after all, how they make money. In order to scare you into agreeing to pay the full amount and quickly, they may even threaten a legal suit.
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.
Collection agencies like lump sum payments so, if you have the funds, make an offer. A good beginning offer to the negotiation would be to settle the debt in full for twenty-five percent (25%) of the original amount owed. Then, you should wait for a response from the collection agency. It may come back with a counteroffer. The process may continue this way until an agreement is reached. It is vitally important that you keep copies of all documentation to and from the collection agency. Be sure to obtain the final agreement in writing.
Negotiating a payment plan with the collection agency is the next option if you don’t have cash on hand for a lump sum payment. A law suit is unlikely if the collection agency feels you are trying.
One thing you want to make sure of is that your debt will be “deleted in its entirety” from your credit history, whether you are paying a lump sum or are going to make payments. If you do not obtain this assurance “in writing” from the credit agency, this black mark may remain on your credit report for up to seven years.
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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