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Chapter 5: Credit Card Debt Settlement

A Debt Settlement Checklist scroll down

Settling with Collection Agencies

First answer the question, should you be settling this account with this collection agency?  What is your goal . . . to avoid a possible court action? . . . to improve your credit rating?

An original creditor can keep a negative listing on your credit report for seven years plus 180 days from the date of first delinquency.   With the exception of Rhode Island (10 years) and Wyoming (8 years) all other state open account statute of limitations on debt collection are six years or less (Usually counting from the date of the last payment or from the date the first missed payment was late.  Check with a local consumer attorney to be certain about how your state statute treats the beginning of the SOL.).  If you are past six years you do not have to worry about being sued, and you have less then a year to wait for the negative listing to fall off your credit rating because it started with the first delinquency, so why settle?

If the debt has been sold, you cannot get the original creditor’s negative listing off your credit report by settling with the junk debt buyer or their collection agency. And, of course you can no longer settle with the original creditor.  They now list your balance due as zero. You can get junk debt buyers and collection agencies off you credit report by disputing the debt, sending them a debt validation letter (See the next Chapter) and instructing them to cease collection activities including any negative listing on your credit report.  If they persist with collection activities and/or a negative listing they are in violation of the FDCPA.

If you contact a junk debt buyer or their collection agency or attorney to offer a debt settlement, you are admitting to your debt and re-contracting with them.  That will give them the option of filing suit against you to collect more on the debt.  It is not productive to settle with junk debt buyers, unless you can afford to.

 If your state’s open account statute of limitations is a lesser term like three years, and you want to buy a home, then you may need to settle, if you can afford to.  Or if the account recently charged off and the collection agency represents the original creditor, you may want to settle because you will be settling with the original creditor.   Remember, you can negotiate the lowest amount with the original creditor when it is with the collection agency and the OC is about to sell the debt of for 10 to 15 cents on the dollar maximum.  Your offer of 20 percent is great by comparison, and the collection agency is motivated to help you because they are about to lose the account when it is sold.

A Debt Settlement Checklist

• Always get the name, phone number and address of the person you are talking to.
• Document all communications with follow-up letters sent CRRR.
• Keep records of phone calls to remind yourself of what you and they agreed to.
• Make copies of all checks and money orders sent.
• When talking on the telephone exercise care about how much information you share about your finances.
• Never sacrifice a secured loan payment to pay a credit card debt.
• Save money for lump sum payments.
• Do not ever expect a creditor to meet an agreement that was made verbally.
• Verify with the original creditor, who the proper collection agency is and who owns the debt.

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