An original creditor is a party with whom you originally opened an account and with whom you owe money. For example, when you applied for and received your credit card, there is a bank that is funding that credit card — such as Chase Bank, Wells Fargo, or Capital One Bank.
Now, when it comes to negotiating and settling your debt, the tactics are quite different when dealing with an original creditor and a collection agency. This article is going to talk about how to deal with the original creditor and how to negotiate an outstanding debt with them.
Before Negotiating Your Debt, Know Who is it You Need to Deal With
We explained above what is an original creditor, but how will you know if that is the party you actually need to deal with? You will know your account is still with the original creditor if all of the following are true:
- You are not more than 150 days late on your payments. If you are over that time limit, chances are your account is being sold to a collection agency.
- Your account has not been transferred to a collection agency. You will know this by having received a letter in the mail from the collection agency or you may be getting phone calls from a collection agency trying to collect this debt.
- The original lending company is still managing your account — you can call them to verify this.
If any of the above points are not true, your account may have been transferred to a collection agency. Your negotiating tactics will be quite different when dealing with the collection agency as in the following ways:
- How you pay them
- If you need to get agreements in writing
- Contacting them
- Negotiating your credit rating
How to Negotiate With an Original Creditor
If you are intimidated by the prospect of calling a creditor, you could try soliciting the help of a local consumer credit counseling service. Settling your debt is a time-consuming ordeal and many people find it confusing and as a result, turn to a CCCS. But, you will most likely get a better deal, and save a lot more money, if you handle the negotiations yourself. CCCS’s main goal is a worthy one, but they often do not negotiate on how the account will be reported, which could leave you debt-free, but with a ruined credit report and a lower credit score than when it all started.
If you are panicking about how to deal with your debt, read our article on Handling Debt Stress.
How do you know your account is still with the original creditor?
That’s easy, just call them. Unlike all of our advice on how you should never call a collection agency, calling the original creditor is just fine and is actually the best way to get things accomplished. If your account is still with them, they will start dealing with you. Otherwise, they will just refer you to the collection agency they sold your account to. As a matter of fact, they will refuse to talk to you at all if your account is in collections.
Try to avoid your account going into collections.
Not only can be dealing with a collection agency a headache, but you then have to worry about two negative marks on your credit. To make sure your account doesn’t go into collections, don’t let your payment go more than 90 days late. American Express will typically send your account to collections after 90 days. With everyone else, you are in dangerous waters after 120 days. Try to make an effort to deal with the original creditor before they sell your account to a collection agency.
Why Would a Creditor Settle With You
Most credit card companies may not be willing to talk to consumers until the account is 60 to 90 days late. If you think about it, why would they offer to just let half of the debt go if you are current on your payments? Also, if you are current on everyone but the creditor you are trying to settle with, they are not going to be willing to reduce your debt.
If they see you are paying everyone else but them, they are going to feel that since you are able to pay everyone else, you really do have the ability to pay them.
Other reasons they would settle:
- If they believe it is in their best interest.
- if they think you don’t have many assets. Because, if they try to sue you they won’t be able to collect much if anything from you even if they win.
So what does this say? If you’ve been paying on time and all of the sudden call up the credit card company and tell them you can’t pay, they are going to be suspicious and less likely to make a deal. But don’t stop paying your bills just to try and convince them to settle. Have an honest conversation with them first.
How to Settle Your Debt With the Creditor
You don’t need anything in writing from the original creditors in order to accept a deal.
As a matter of fact, they will refuse to give you anything in writing and that’s ok. You might want to record the conversation if you are not in a two-party state, but you must inform them you are recording the conversation. What’s a two-party state? It means that in some states, only one party on the telephone needs to give permission to have the conversation recorded and that one party can be you. Check your state for exact federal regulations.
Also, keep a careful record log of your phone calls, who you talked to, etc. Just a file or notebook containing all of your notes is just fine.
Paying by checks over the phone, credit cards is fine.
We still recommend paying with a cashier’s check or money order. Credit card companies are highly regulated, much more so than the collection agencies, and they are, as a result, much more ethical.
Get a “Paid as Agreed” rating, otherwise, “Settled” is the next best thing.
In recent years, credit card companies have adopted an immovable stance on your account rating if you settle for less than is owed. They will agree to list your account as “settled,” but that’s it. You can always try to get a better rating, but we doubt if you are going to have much luck. Remember, settled is better than charge off. At the very minimum, the account should have a ZERO balance. You should only agree that the account show settled if all other negative notations, such as charge off, repossession, late notations, and collection, are deleted at the same time.