For many people, settling past due debts with bill collectors can be about as pleasant of an experience as getting a root canal. Even so, settling your past due debts may be a necessary evil if you are trying to finally address and begin to eliminate the credit problems of your past. Plus on the bright side, if your finances have changed and you are finally able to resolve some of your old, delinquent accounts you could be eliminating some stress from your life as well (collection calls, collection letters, and even potential law suits).
Of course before you set out to negotiate and settle your past due debts there are a few facts you should first understand. Settling old debts is not going to be a magic wand which cures all of your former credit problems. Furthermore, if you settle your debt the wrong way you could even make yourself vulnerable to being sued. Consider the following tips before picking up the phone to negotiate with a debt collector.
Tips for Negotiating with Debt Collectors the Right Way
If your debt has been purchased by a third party debt collector, then chances are very high the debt was purchased for only pennies on the dollar. This means that you can pay a fraction of the actual debt owed and the debt collector will still be making a sizable profit off your settlement. You do not need to feel guilty about asking your debt collector to negotiate and accept a lower amount to resolve an old debt.
Additionally, whether you pay 100% of your old debt or whether you can negotiate a lower settlement amount you should still end up with a zero balance on your credit reports (assuming the collection agency does their job after you make your final payment). As a result, there generally is little to no upside to paying a dollar more than is necessary to settle your old debt.
2. Payment Arrangements Are Probably a Bad Idea
Creditors and third party debt collectors likely have the right to sue you if you fail to pay your debts. However, many collection accounts will never turn into lawsuits because it would not be profitable for a debt collector to sue someone who cannot afford to pay them anyway. A judgment does not do a debt collector any good if it’s uncollectable.
While your unpaid debts can potentially lead to lawsuits, each state places a time limit (aka a statute of limitations) on how long a debt collector can try to sue you.
Your debt collectors can either sue you during that window of time or the debt becomes off limits (in terms of a lawsuit) once the debt has become “time barred.” Unfortunately, there are also ways that you can unintentionally restart the clock on previously time barred debt.
Making a small payment, for example, is one of the most common ways that you could unknowingly mess up and reopen yourself to a potential lawsuit from a debt collector. When you make a payment of any kind on an unresolved debt (even just $10) you may restart the debt collection clock, allowing a debt collector the legal opportunity to sue you for the remaining balance owed on your debt if they wish to do so. Instead, it is typically best to save up your money and then settle any past due debt in one lump sum. It is fine to settle time barred debt, especially if it is preventing you from qualifying for a loan, but it is very dangerous to do so unless you have the funds to take care of a settlement in one single payment.
3. Get their Offer In Writing
Debt collectors get a bad rap, and sometimes unfairly. After all, they are doing a necessary job which you can bet is extremely stressful and let’s face it…you probably do owe the debt. Still, even if the collection agent who negotiates your settlement with you sounds like the nicest person in the world on the phone it is important to protect yourself.
You should always get a settlement offer in writing before you send in a payment to a debt collector. Remember, if there is a disagreement after the fact you will not have any means available to protect yourself unless you have the original settlement offer in writing. “He said, she said” simply is not going to cut it if a problem arises after you have already paid.
Have you had to deal with debt collectors in the past? What tactics have worked to get you back on the straight and narrow?