How to Negotiate With Debt Collectors to Eliminate Old Debt &Raise Your Credit Score

If you have old debt from college or an earlier part of your life that you never got around to paying, it’s probably still floating around on your credit report. These bad debts will lower your credit score and make it more difficult for you to get a home-loan, a car-loan, or just about any other type of credit. It could also make it harder for you to get a cell-phone, rent a car, rent an apartment, or even get a job!

If you have delinquent debt floating around from your past, you’re going to want to clean it up, but before you begin this process, you need to know how to negotiate with debt collectors so that you don’t end up getting ripped-off and pay much more than you have to. Remember that debt collection agencies are limited by the FTC and the Fair Debt Collection Practices act, as well as state law. They have a lot fewer rights than they would lead you to believe.

There’s also the strong possibility that the collection agency or debt buyer that you are dealing with purchased the debt for less than 10 cents on the dollar. If you had a debt that was originally $1,000, chances are they purchased it for under $100.00. This means if you pay them anything more than $100.00, they are making money on the deal. If you are dealing with the bank of company that you originally borrowed the money from, this isn’t the case, but several years down the line, it’s very likely that you are dealing with a collection agency or debt buyer. Quite often they’ll use harassment techniques and attempt to scare you, but don’t let them. You are the one that has what they want (money), so you should be the one that makes the rules. Here’s how to deal with debt collectors and debt buying companies so that you can pay 30-50% on the money that you actually owe, rather than the outrageous number that they come up with.

Know these things before settling a debt:

• Debt collectors will want you to pay them right then and there, and tell you that they’re going to sue you if you don’t pay right away. They’re lying.
• Debt collectors typically cannot take you to court unless you are in the same state as them, but this varies from state to state. Find out your rights by calling your local district attorney’s office.
• If you’re tired of harassing calls, send them a cease and desist letter and tell them that you will only communicate via the mail. If they violate that, you can sue them and win.
• Credit card debt is unsecured; this means they can’t repossess anything that you own, such as your home or your car.
• A collector cannot garnish your wages unless they have sued you and won.
• A bad debt will only be on your credit score for seven years, they cannot ruin your credit forever.
• Get any agreement that you have in writing. Debt collectors frequently lie to customers in order to get any sort of payment. They will take the money you give them as a payment, and pretend the agreement never existed.
• Never give the company you are dealing with post-dated checks or electronic access to your checking account. They will take all of the money out of your account.

How to develop a game plan to deal with debt collectors:

1. Figure out who you owe the money to. Check your credit reports and call the companies that you had originally owed the money to so that you can find out who you need to pay money to. It’s almost always a good idea to be the one to call them first, you might get better treatment if you find them before they find you.

2. Start with the smallest debt. Save up enough to pay 30 to 50 cents on the dollar for your smallest delinquent debt. Once you get enough to settle that debt, call the first company on the list and offer them a settlement. If they’re unwilling to work with you and demand the full amount, let them holler and scream, but just pass them over. Go on to the next smallest debt and put them at the end of the list.

3. Make an offer. If you let them dictate how much money that you’re going to pay, you’re almost always going to end up paying too much. Make an offer on your old debt that’s reasonable to how old the debt is. If the debt is 10 years old, a 20-30% offer is reasonable, but if it’s delinquent in the last 6 months, chances are you’re going to have to pay almost all of it. Negotiate with them until you can get the best deal.

4. Get it in writing. Once you have a deal with a debt collection agency, get them to mail you a copy of it in writing or send you an email with it so that you have some sort of evidence that you have an agreement. Make sure it says that a payment of X amount will settle this account in full. If you don’t have any proof, they may very well take your money and sell your account to another collections agency. If they won’t give it to you, tell them that you won’t send them any money until you receive it.

5.       Make the payment. Once you have the agreement in place, send them a cashier’s check or a money order for the full amount. Don’t send them a personal check or allow them to electronically draft the funds from your checking account. You’re asking for trouble.

6. Wash, Rinse, Repeat. Once you get the first debt on the line taken care of, save up 30% to 50% of the original amount of the second payment and repeat the process. Don’t feel the need to call all of them at once. Only call up the smallest one that’s currently unpaid and deal with them one at a time. Keep on going through this process until they’re all paid off.

If you follow these six steps to clean up your delinquent credit, they will fall off your credit report in 6 to 8 years completely. If you want to get it paid off sooner, you can negotiate with the debt agency to completely remove the item from your credit report when you pay it off in full. They won’t always do this, but some of them have been known to do so.