It is never fun when a bill gets sent to a debt collection agency. But, sometimes it puts the ball in your court and gives you a chance to achieve true credit repair. Whether you just couldn’t afford to pay your debt or you didn’t agree with it, once it is “in debt collections,” there is power in your hands.
Your Rights Against a Debt Collection Agency
There are many things you can do and say when dealing with a collection agency. First, you have the ability to make an offer to pay off the debt for less than the full amount. This could run down as low as 10 percent but it depends on how long the collection agency has tried to get you to pay it and what they paid for it.
It never hurts to make an offer. You can also negotiate a “pay for delete,” which means you clear the debt and get it taken off your credit report. With the help of a credit repair agency, this uncommon tactic becomes much more possible. It appears that the smaller agencies are more likely to agree than the larger ones.
Making Contact with a Debt Collection Agency
The debt collection agency will likely contact you before you realize you need to contact them. Or, the creditor you defaulted on will notify you first. You can send a cease and desist letter to force an end to any communication if you do not wish to deal with the agency. You also have the right to dispute the debt through the credit bureau(s) that list it on your file.
You should always start the communication off by confirming the amount you owe and requesting a written copy of these details. If the debt collection agency reports a different balance — a credit repair company can push for it to be removed from your file.
Making an Offer to Pay Off Collection Debt
In most cases, your main course of action is making a flat offer to pay off the debt. Agencies usually pay in the 25-50 percent range when purchasing your debt from the original creditor. Keep this in mind when making your offer. Make sure to only communicate in writing and start with a lower offer to see how they counter.
What you want to avoid is making a payment plan with the agency. This is actually bad for your credit report and score. It means that you will have an entry to bump the bad debt to the top of your report every month. You want the agency to report the debt as “paid as agreed,” as soon as possible as it can take two years before the damage wears off.
Differentiating the Types of Collection Agencies
There are two types of collection agencies that exist, the ones that operate in-house and the external companies that buy your debt. You have more leverage when working with an in-house agency. In some cases, it is even possible to restore your credit line once you cover your debt which looks better on your credit report.
Always confirm whether you are dealing with a first or third-party collection agency. This will tell you how much negotiation room you have when making an offer to pay off the debt. It also indicates whether you can do a “pay for delete,” or if you are better off approaching as someone unable to pay in full. Paying for a removal normally requires you to pay 100 percent of the initial debt.
How Collection’s Agencies Report Debt
You need to be very careful with how a collection agency handles your credit report. The balance, payment date, settlement terms and everything else must be accurate and timely recorded. You can dispute the debt with the respective credit report agencies if the information supplied by the collection agency doesn’t match the details of the debt on your credit report.
Your goal is to pay off any debt you truly owe and obtain a “paid as agreed,” comment on your credit file. This results in the lowest impact possible to your credit score and looks better when future lenders pull your file. You will notice a bump in your FICO score if you pay off a debt in collections that sat for a while.
You want to avoid having it show as anything else. You should also avoid paying off very old collections debt if possible. These entries only show on your file for seven years after the last delinquency date. You make the debt a new factor in your credit score calculation if it already stopped having an impact. Just send a cease and desist to stop further communication and wait for it to drop off your report.
Dealing with a collection agency is not all that bad. Even when you get the odd rude and aggressive one, it’s possible to stop the harassment. The key is to keep to written communication and log each interaction you have while watching for chances to dispute the debt.
A professional credit repair service can help you deal with collection agencies. If you need help removing a collections debt or paying it off cheaper, feel free to consult with Ovation Credit Repair to learn your options (complimentary consultation).