Friday, May 25, 2012

Pay a Collection Fast and Put it in your Past!

  If collection agencies can buy my debt at a discount, can I pay it at a discount? Yes, often you can pay it at a discount but it depends on the age of the debt being collected. New collections are not typically discounted as they are being collected by internal collection departments or a business is using a collection agency as a vendor to collect for them. The collection is discounted when that debt ages and gets sold to an outside agency for collection.

 Contact the collection agency and test the waters of negotiation with them. Depending on how old your debt is, they may be willing to give you a significant discount. Often debt that is two years old or more is purchased from businesses and other collection agencies at 50 cents or less on the dollar. A $500 debt may be settled for half or less.

In your negotiation, make sure they will show your debt as paid or settled for a lesser amount. Either of these is preferable to an open and unpaid collection on your credit. Open collections will be a drag on your credit score for seven years. The “point cost” on your score will remain basically the same from day one to the last day of the seven years. Paying the collection changes the debt from open/unpaid to closed/paid. Paying an open collection has an immediate positive affect on your credit score. It will bump up right away and as it gets further and further in your past your score will improve with each passing year provided you don’t incur any further bad debt.

If you agree to an amount and how your collection will be listed on your credit report, the collection agency will want payment NOW and you should be prepared to cut them a check within a day or two. But, before you write the check, GET IT IN WRITING FROM THE AGENCY! Get the mutual agreement the collection agency made faxed to you, emailed to you, or snail mailed to you. Make a copy of the agreement and file the original. Attach your check to the agreement copy and you now have a contract with the collection agency.

Word to the wise: Never send a collection agency a check before you get your agreement in writing. A member of Meriwest Credit Union was in one of my workshops not long ago and complained about a major U.S. financial company. It is the sort of company that everyone believes is one of the most honest and forthright businesses in our nation. He received a call from them for a debt of $2,400 he had built up on his card. These had been business related expenses but the business had gone under in the recession and he was not going to be reimbursed for them. The financial company called him and said that if he paid $1,200 they would show his debt as paid. He mailed the check. The next month, they called him and asked when he would mail the other half of what he owed. He said the guy last month said his debt would show as paid. The fellow at the collection department asked, “Did you get that in writing?” Always get it in writing!

Free Financial Education Class: Real World Budgeting for Teens
Wednesday, June 13, 2012 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA


Free Financial Education Class: Auto Financing 101
Wednesday, June 20, 2012 - 6:30-7:30 p.m.
Chesbro Financial Center, San Jose, CA

No comments:

Post a Comment