When you are talking to a debt collector, they are only interested in getting their money. They have paid a certain amount to buy your debt, and they are really looking for a way to make money from that purchase. They are often willing to be flexible in working with you, as long as they get that money. This flexibility can include a payment schedule (see my blog entry on What Is A Promise To Pay), a settlement, or a full payment. Each of these has a benefit based on your personal financial situation.
One of the things you can offer a collector is a settlement. In fact, they may offer a settlement to you! A settlement is just an agreement that you will pay a certain number of dollars, and the collector will consider the account paid. Typically, they will be looking for 80% to 90% of the original price, but you may be able to negotiate a lower rate.
When you negotiate a settlement, always work from the original balance up, not from the balance including the interest down. In other words, if you had a $1,000.00 credit card balance, and you stopped paying on it, the interest will have gone up. After 6 months, with interest and fees, the collector may claim that you owe $1,500.00 dollars or more. You probably don’t have to pay all of that. The collector probably bought the account based on the original balance. Every collection agency will add interest and fees to the collection amount. You should be able to negotiate many of these fees away. The original principle may be more difficult, but give it a shot.
Again, before you pay, get everything in writing. And remember, a settlement will show up on your credit report as either a settlement notation, or as ‘Not Paid’, both of which will bring your scores down. If you can, go ahead and see if the collector will give you a Pay For Deletion with the settlement. That is a long shot, but it will help your report.
