 TITLE: Debt Settlement Techniques - How to Settle Debts on Your Own CONTENT: How to Settle Debts with Collection Agencies \n---------------------------------------------\n###### Written by: Kristy Welsh\nSettle Debts on Your Own with Our Debt Settlement Techniques\nSome people are skeptical, saying it is impossible to settle a debt that is being handled by a collection agency. We are here to tell you that you can settle an outstanding debt being handled by a collection agency by using our debt settlement strategies. This article addresses a debt which is with a _**collection agency**_. If you are trying to settle a debt with the _**original creditor**_, please read this debt settlement article.\nHow do you know if your debt is with the original creditor or with a collection agency? Simple — call the original creditor, i.e., the credit card company, and ask them. If your debt has been turned over to a collection agency, the original creditor is not going to deal with you. The original debt holder has collected its tax benefits under U.S. tax law for bad debts or sold it. Hence, they have \"cut the ties\" with the debt. You can also pull a copy of your credit reports to see who is reporting the debt.\n### Risks and Realities of Overdue Debts\n**Fact 1**  \nMany consumers are unaware of their risks with unpaid debts. Yes, it's true that a creditor could sue you in court and win a judgment, allowing the creditor to garnish your wages or seize bank accounts. However, the chances of this are **_pretty slim_**.\nIt's also true that collection agencies are turning to lawsuits more and more these days, but we would still tell you not to worry. Once you make the creditor aware that you know the law, they are more likely to leave you alone. With savvy consumers, many debt collectors think it is simply too much time, effort, and expense for them to take legal action against a debt.\nWe don't want to lie to you; the possibility of a lawsuit does exist. You might want to take comfort in this: if they do take you to court, often they have no case. There are a lot of players out there, like junk debt buyers, who buy and sell debts and place them into million dollar packages to sell on Wall Street.\n**Fact 2**  \nToo many consumers feel their debts are overwhelming and there is nothing they can do other than file bankruptcy. Consumers believe those awful tales spun by collection agencies of impending doom, especially about garnishment or seizure of property. Collection agents fail to mention that in order for these actions to take place, the creditor must first go to court.\nDue to lack of information, many consumers get panicky and turn to bankruptcy in these situations. **_Please don't do this!_**  Bankruptcy should not be used until after all options are exhausted, including the settlement procedures we are going to talk about here. In addition to getting out of your debts by settling, see our other alternatives to filing for bankruptcy.\n### Try Debt Validation\nThe best way to deal with a collection agency is the debt validation method. Don't bury your head in the sand when you first get a debt collection letter. If you send a debt validation request within 30 days of receiving that anxiety-provoking letter, debt validation offers important protections. This action should be your first step in the settlement process.\n### Check the Statute of Limitations\nBefore you attempt to settle a debt, check the statute of limitations on the debt. Collectors only have a certain amount of time to sue you for payments. If your debt is too old, the collector can't take you to court. You can determine if the statute of limitations for collecting a debt in your state has passed.\nIf you find the debt is older than the statute of limitations, tell any bill collector calling you they are wasting their time by harassing you for an uncollectable debt, as neither they nor the original creditor nor the assigned collection agency can take you to court to get a judgment.\n### Don't Confuse the Statute of Limitations with the Amount of Time a Collection Can Stay on Your Report\nAfter seven years (in most cases), a negative mark and the related collections will disappear from your credit report. If the debt has gone unpaid for seven years, then it can no longer legally remain on your credit report. Before the seven-year mark, you must challenge this listing on your credit report to get it off. You can see how long a negative item remains on your report.\nHowever, even though a debt may no longer legally appear on your credit report because it's too old, you could still be sued if the statute of limitations for your debt in your state is not up.\n**If the debt is gone from your credit report via debt validation AND the statute of limitations is up on this debt, you're home free!**\nIf your debt meets both of the above conditions, it is uncollectable and it cannot appear on your credit report. If you get to this point, stop here; you are done, so don't worry about the debt.\n### Good Candidates for Debt Settlement\nFor the purpose of this article, there are two types of debt — secured and unsecured.\n**Unsecured Debts**\n*   Medical bills\n*   Credit cards\n*   Department store cards\n*   Personal loans\n*   Student loans\n*   Bounced checks\n**Secured Debts**\n*   Home\n*   Auto\n**As a Rule, You Can Only Settle Unsecured Debts**\nWith a secured debt, a piece of real property (such as an automobile or a home) is promised if the debtor can't finish making payments, or defaults, on the loan. You will not be able to settle these debts, as the creditor will simply accept the promised property as the settlement. As a matter of fact, with a home or auto loan, you most likely won't be reading this information — your property will just be repossessed or foreclosed on.\nWith unsecured debts, there is nothing attached to the loan promised as repayment. Unsecured loans are typically given to people with good credit, due solely to the fact that they have good credit. These are the type of debts that a creditor is willing to settle, as they have no way to guarantee they will receive anything from you.\n### How to Get a Creditor to Make the Deal You Want\nYou have the natural advantage in debt settlement, because you have something the creditor wants. Don't cave in when they first tell you no. Remain calm and don't lose it and get angry. It's usually best to correspond with them via letters, so you have a paper trail of all your actions. Keep the attitude at all times that the collection agency will take less money than they say they will. \n### How Much Should You Offer to Settle Your Debt?\nDebt collectors are not hurting for money. To give you some background on how debt collectors operate, most bad debt companies pay or receive literally pennies on the dollar for the debts for which they are trying to collect. The amount that companies pay for bad debt depends on the type of account and its age:\n*   Debts that have recently been charged off: 6 to 7 cents on the dollar.\n*   Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar.\n*   Years-old, out-of-statute debts: A penny or less.\nWith this in mind, you should always start your offer at 25 percent or less. Let's understand the math here. If your debt is $1,000, let's say at the most, the collection agency has paid or will collect 7 cents on the dollar, or $70. If you offer them $250 (25 percent), they are still making a profit of $180. Remember, the credit card companies are out of the picture at this point. This money goes directly to the collection agencies.\n### Important Tips When Negotiating Your Debts\n1.  **It's best to not talk to a collection agency on the phone.** We **_used_** to say never, however, if you want to get vital information from the collection agency, or even \"feel them out\" for what they would take as a settlement, go ahead. Just keep your finger on the hang-up button on your phone in case they start getting nasty.\n2.  **If you do call them**, start off the conversation by getting the physical address of the collection agency, the name of the agency, and the direct phone number to the person you are talking to.\n3.  **Get your terms _in writing_** before you even _consider_ making a payment. _Never_ expect a creditor to meet an agreement that was made verbally. _Everything_ must be in writing and, even then, you will probably have to fight to make the creditor live up to his end of the bargain.\n4.  **The older the debt, the smaller the settlement**. Logically, if they have called you 50 times and gotten no response, most likely they are going to move on to a better prospect. The collection agency may also choose to sell or assign the debt to a new collection agency _for even less money_, or temporarily ignore the debt. The course of action chosen by the creditor will vary widely between corporations and debts.\n5.  **Don't agree to payments.** This is **always** a bad idea. If you make payments to a collection agency, little things like extra interest or handling fees could keep your balance from ever going down. In some cases, making a payment restarts the statute of limitations. Wait until you have one lump sum. Remember, the older the collection, the more eager they will be to settle. If they are hounding you, get rid of them by sending a cease and desist letter.\n6.  **Keep good records.** This can be the difference between a good and bad settlement. Don't expect them to remember you or what you agreed upon.\n7.  **Send all correspondence via registered mail, receipt requested**. This doesn't require a trip to the post office; you can use the USPS's online Click-N-Ship service.\n8.  **Keep a copy of every letter you send.**\n9.  **Keep a log of when you spoke to the agencies, and with whom you spoke to**. Ask for the name of the supervisor of the person you spoke to, as the turnover rate at collections agencies is high.\n10.  **Follow up all phone correspondence** with a letter (registered, of course).\n11.  **Penalties and extra interest are typically fictitious amounts of money added on by the collection agency to pad their profits.** We've seen as much as 50 percent of the debt or more claimed to be owed by a collection agency consisting of interest and fees. Example: A guy who had his $5,000 original debts balloon up to $11,000 in less than 3 years due to interest and fees. This is illegal; every state has usury laws (which dictate the maximum interests allowed to be charged.) If you consider the junk debt buyer paid 7 cents on the dollar or less, there is no way there is this much interest.\n12.  **Never look too eager to settle.** Take plenty of time to reach an agreement. Never let it slip that you need to settle the debt because you're buying a home, car, or anything else. If, for example, you tell a creditor that you really need to get this debt settled to get into your dream home, you can forget any kind of settlement. The creditor will insist on the full balance. Try not to accept the first, or even second, settlement offer (unless of course, it's really good). If the collection agency is the one calling YOU to push the deal forward, you have the upper hand. You cannot expect to reach an affordable settlement if the creditor thinks he is in the driver's seat.\n13.  **Once you hand over the cash, all the wheeling and dealing is over.** If you forgot to negotiate the way the listing appears on your credit report, guess what? You're out of luck. Make sure you've gone over your agreement with a fine-tooth comb.\n### What If You're Contacted by More Than One Collection Agency for the Same Debt?\nIf you're contacted by more than one collection agency for the same debt, it means that the original creditor has hired a secondary collection agency, or the first one has sold the debt to a second creditor. This indicates the original creditor and even the first collection agency has given up on you. This means that the second collection agency has paid even less for the debt than the first one. If the agency hasn't been able to reach you by phone but knows that you are receiving its letters, it may be willing to take even less.\n### Should You Threaten Bankruptcy?\n**Use the threat of bankruptcy**. It will be in your best interest if the creditor believes that you have very little money and you are teetering on the edge of bankruptcy. You should approach each creditor as though this is their last chance to compromise, and get something out of your debt, before you declare bankruptcy and they get nothing.\n**_Be careful when doing this, however._** If you accumulate any more debt after stating this to a creditor, you may not be able to discharge this debt within bankruptcy.\n### Negotiate Your Credit Rating with the Creditor\nThe next thing you should do is negotiate your credit rating with the creditor. _**This is very important**_ as a \"paid\" collection is as negative to your credit rating as an \"unpaid collection.\" All your negotiation efforts and hard cold cash will do nothing to rebuild your credit report if you neglect to negotiate your credit rating in the process. You should push for a full deletion of the tradeline from your credit report.  Think this is impossible?  No, the collector chooses what to report on your credit report.  The only requirement by law is if they do report, it must be accurate. The more you pay, the more likely they are to remove the listing. END