Credit Infocenter

DIY Credit Repair: Step 5, Debt Settlement

September 3rd, 2013 · No Comments · Debt Settlement

by Kristy Welsh

(Last Updated On: February 26, 2018)

DIY Credit Repair: Debt Settlement

If you still have old debts on your credit reports that you were unable to remove through the dispute or debt validation process — and the remaining listings have not reached their statute of limitations — then you may want to move on to debt settlement. This is an option available to you whether the debt has been sold to a collection agency or is still with the original creditor. However, the process differs a little for dealing with one or the other.

First of all, determine whether the debts remaining on your credit reports are secured or unsecured. This is important, as secured debt cannot be settled; the creditor will simply seize from you the property tied to the loan (i.e., your home or car). Unsecured debt, on the other hand, has no such property attached, including medical bills, credit cards, department store cards, personal loans and student loans.

Once you have identified the unsecured debts still remaining on your credit reports, determine whether the debt is still with the original creditor or has been turned over or sold to a collection agency.

To negotiate and settle a debt with a collection agency:

  1. Send to the collection agency an agreement requesting settlement of the debt.
  2. Be sure to include as part of your negotiation removal of the negative item. “Paid as agreed” will not do.
  3. At no time during the negotiation process should you appear eager to settle. If they know you need to clean up your credit quickly, they’re likely not going to budge, confident you’ll cave before they do.
  4. Keep a copy of the request for your records.
  5. Mail the request via regular certified mail with return receipt.
  6. Try not to accept the agency’s first offer, or even the second.
  7. Respond in writing, again via regular certified mail with return receipt; keep copies.
  8. Try to avoid phone conversations unless you feel it is the only way to gather needed information. At the beginning of the conversation, ask for the physical mailing address of the agency, the fax number, the name of the person you are speaking with, and the name of their supervisor. Stay calm and collected until you gather the information you need, and don’t be afraid to hang up on them, need be.
  9. If you do communicate by phone, follow up with a letter outlining the terms discussed in the conversation. Again, send this via regular certified mail with return receipt; keep copies.
  10. Do not agree to payments.

To negotiate and settle debt with an original creditor:

  1. Feel free to negotiate over the phone and don’t worry about getting anything in writing outlining the terms of your settlement. In fact, original creditors will likely refuse to do so.
  2. Include in your negotiations a request for the account to be listed as “Paid as agreed.” (Note, this is different from the terms you want with a collection agency. While paid as agreed with an original creditor is a good thing, that’s not the case with a collection agency. Any listing of an account in collections on your credit reports is a bad thing, so you want those listings removed entirely.) If you cannot get an original creditor to list the account paid as agreed, it should be listed as “Settled.”
  3. In addition to the addition of the “Paid as agreed” or “Settled” listing, ask for the removal of all negative listings and, of course, the reflection of a zero balance once the debt has been paid.
  4. Though paying by cashier’s check is preferred, if the creditor insists on it feel free to pay over the phone via check or credit card. (Note, this is unique to original creditors as they are subject to more regulations than collection agencies.)

For more information, of  if you are not sure whether a debt has been turned over to a collection agency or is still with the original creditor, see our comprehensive article on debt settlement.

Up next, Step 6, Add Positive Credit History.

Tags: ····

No Comments so far ↓

There are no comments yet...Kick things off by filling out the form below.

Leave a Comment