Do you have a bill that has been turned over to a collection agency? Of course, you'll want to make things right as well as remove the negative effect on your credit score. But what if you can't afford to pay the bill in full? Why not try to negotiate with the debt collector? They likely bought the debt at a significant discount and may be more willing to accept a deal – and then you are on the path to a clearer mind and a better credit score.
If you decide to negotiate, make sure that you are prepared to follow through properly. Don't try to shortcut by paying third parties to do it for you. Bankrate.com Chief Financial Analyst Greg McBride agrees, noting, "Don't fall for this idea that another company's going to be able to resolve this for you if you just pay them some fee." McBride suggests sticking with the creditor or collection agency that owns the debt, since the current debt owner is the only one that can verify to the credit bureau that the debt has been paid.
Consider the following steps to be fully prepared for your negotiation.
Verify the Debt – Are you sure that the debt is even yours to pay? The debt collector is obligated to send you certain verifying information about the debt if you request a debt validation letter within 30 days of first contact. Look over the information and learn more about the debt. Details may help in the negotiations.
Set Up a Budget-Based Repayment Plan – Create an updated budget so you know how much you can realistically afford to pay to the collection agency each month. Give yourself some slack in this budget for contingencies, and start negotiations from this point. Be prepared to counter-offer with a value that contains higher monthly payments than your first offer but still stays within your affordability limits.
Practice Your Negotiation – Write down some talking points and practice what you will say aloud. Try to anticipate any curveballs that a collection agency might use to persuade, confuse, or bully you. By doing so, you will feel more prepared and comfortable during the actual negotiations.
Record the Negotiation – Recording the negotiation provides a reference to clarify any terms and head off any disputes over agreement terms. Make sure to let the collection agency know that you are recording the conversation.
Get It in Writing – Insist on receiving a written copy of the agreement before sending any payments. Make sure that the written terms match the verbal agreement.
Avoid Pay-for-Delete – Pay-for-delete refers to the practice of asking a collection agency to remove the credit delinquency from your report in exchange for paying off the loan balance. The intent is to raise your credit score rapidly. While it has worked for some, pay-for-delete should generally be a last resort.
The credit bureau Experian estimates that only 10% of collection agencies will agree to a pay-for-delete deal. Pay-for-delete may not be illegal, but it is a shady practice at best – and you have to wonder whether the agency will follow through on their end of the bargain. If a collection agency were willing to ignore a signed deal with credit bureaus to provide complete and accurate information, why would they keep any signed agreement with you?
Now that you are prepared, negotiate with confidence. McBride offers a final piece of advice: "Be sure that whatever you resolve, make sure that it gets noted as 'paid in full' on your credit report." Don't go through all the effort of negotiating a payment plan and seeing it through, only to get no credit (pun intended) for your efforts.
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