I’ve had some questions come in about getting a settlement agreement on a collection or charged off account and how that plays out in having the account deleted from your credit report.
A settlement is an agreement to pay less than the balance showing. Saving money is always a good thing — especially when the balance might include late fees and a high interest rate. If the past due account has been sold to a collection company, then they probably purchased your debt (along with a bundle of other people’s debts) for pennies on the dollar.
A collection agency can afford to settle less than the balance and still make a profit.
If the balance is $6,000 and they settle for $3,000 and they report to the IRS that you profited by $3,000, that is okay. You will come out ahead by saving $3,000 and reporting an “income” of $3K to the IRS. Always take the settlement when you can — which is most of the time.
The purpose of the settlement is so they make some money rather than zero. Your purpose is also to save money and to stop the stress and harassment at the same time. You also want to get it deleted from your credit report, which is another step in the negotiation process.
Settling for less than the balance does not remove it from your credit report. The best settlement agreement includes both saving money and deletion from your credit report.
The #1 rule of getting a settlement is to get it in writing. If it’s not in writing, you run the risk of another individual at the collection company contacting you later for more money, claiming you did not pay all that you owe. That very thing happened to one of my book readers recently; and fortunately, he had followed Chapter 15 and gotten the agreement in writing, which shut them up in a big hurry.
When their Settlement Agreement Letter states that they will accept $3,000 for account # 1234 if paid by the end of the month, then that ensures they won’t ask for more money later. IT DOES NOT REMOVE IT FROM YOUR CREDIT REPORT.
If the letter states that they will report the account as “settled and paid,” then that wording goes on your credit report and confirms that the account is yours, because you agreed to the amount and paid it.
You are doing yourself a disservice to have “settled and paid” added to the account. You don’t want that! You want them to agree to delete it from your credit file upon receipt of funds.
Working as a mortgage loan officer doing debt payoffs in a refinance, I also negotiated many settlements for my homeowner clients. I share how I did this and exactly what I said in Chapter 15.
Sometimes, the creditor absolutely refuses to provide an agreement to remove the account from your credit file, and no matter how long you hold out, they won’t budge. In that case, use the strategy in Chapter 16, even if your account is small and not large.
An agreement that is not in writing (letter or email), is a tease, not an agreement. You must get the agreed upon amount — with any added terms (all in your favor) — in writing so that you can save it for future use.
If you receive a threatening phone call or letter, especially if it is a large balance or from an attorney’s office, do not ignore it. Check to see if it is past the Statute of Limitations in your state; and if not, negotiate a good Settlement Agreement that is put into writing.
Good luck! Others are doing this, and you can, too.