All
collection agencies and creditors will settle for less than the full balance,
except collections on student loans and unpaid child support, which must be
paid in full due to government regulation imposed on the collecting
authority. With the right person negotiating the debt, a good
settlement can be obtained at 35 to 65 cents on the dollar on the balance owed
depending on the company and their policies. But remember, any collection
or charge-off that is paid or settled WILL NOT get deleted from the credit
report by simply paying it; the account will only get updated
as being paid or settled on the credit report and remain there for seven years
from the time since the last time a payment was made before it went to
collection or charge off ( Not 7 years from the time
the person pays or settles the account, which many people falsely assume ) So
now the question is; WHAT SHOULD YOU PAY TO SETTLE THE ACCOUNT? I always
start answering this question by saying a client should be willing to pay 100
cents on the dollar if they are able to get the collection agency to
agree to delete the account with payment in full. Although this is very hard to
accomplish, it is possible. To do this the company usually wants payment
in full if they are going to delete also. ( carrot on the end of the stick
mentality ) If the client can afford to pay the particular account in full
with a deletion then it is optimal because every removal counts when dealing
with the credit score and the more points the better. I think that
gaining a few extra points is worth the extra money spent since a few points
can mean thousands in future interest savings on a loan. But the client
can only do what they can afford to do. This deletion with payment theory
only works with collection agencies and not charge-offs with credit card
companies. It is almost impossible to get a deletion with payment from a
credit card company because they never agree unless there is a very good
reason, which is usually not the case for clients in most situations. On
a side note, I do not suggest paying a collection in full even with an agreement
to delete if the collection is over $2000. I only recommend paying
in full with a deletion if the total debt is under $2000, unless the client has
tons of money, which is usually not the case if they have unpaid
collections. The reason it is important to pay or settle unpaid
collections, is because the collection agencies usually sell the collection to
other collection agencies in the future when the debt REMAINS unpaid.
Worse yet, they may even sue you and get a judgment against you which will hurt
your credit even more. That is why it is a good idea to settle
collections if you have the money available. Here is my synopsis of when
you should or should not settle these debts:
CREDIT
CARD CHARGE OFF– Always try to settle for pennies on the dollar because deletion
is nearly impossible with payment, even if paying in full. A settled
account with a zero balance is not worse than a paid in full charge off for
credit scoring purposes, which is why it is never a good idea to pay extra and
settle it in full.
COLLECTION
ACCOUNT UNDER $2000– Try to offer payment in full if the collection
agency agrees to delete with payment. If the collection agency says no
then I would suggest switching gears and try to get the best settlement
possible because a paid in full collection or a settled collection are pretty
much the same for the credit scoring effect.
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COLLECTION
ACCOUNTS OVER $2000– Try to settle for pennies on the dollar because the
benefit of deletion may not be worth paying the extra money; UNLESS of course
the client has lots of money to spare.
UNPAID
COLLECTIONS AND CHARGE-OFFS, NO MATTER WHAT AMOUNT THAT HAS BEEN OUTSTANDING
FOR LONGER THAN FOUR YEARS, SHOULD NOT BE PAID OR SETTLED EXCEPT IN CERTAIN
CIRCUMSTANCES- First-off, these accounts are 4 years or older and do not have a big
effect on the credit score since they are old. Second, when you pay a
collection or a charge-off sometimes your credit score will go down 10 to 20
points because the credit bureaus change the date of recent activity from 4
years ago to the present; which the Credit Scoring Software interprets as
recent collection or charge-off activity, even though all you did was pay
it. YOU MAY BE THINKING "IF THAT
