How to Settle a Debt

When the time is right to settle a debt for less than the original amount owed there are a number of things of which a consumer must be aware. 

First, you should know that the creditor or debt collection agency will only notify the credit bureaus IF they are a reporting agency. If they are not a reporting
agency, than you are responsible to notify the credit bureaus that a certain debt has been paid/ settled in full. You will need to be provided with proof of settlement.

Next, be aware that IF a reporting agency does notify the credit bureau of a settlement they will use wording that will inform other creditors that the debt was “paid for less than the original amount owed.” While the debt is no longer owed other creditors will realize that the debt was liquidated for less than the original
amount and creditors do not like to feel that they have lost income.

Remember to put everything in writing. As I stated in previous blogs, Avoid phone calls with collection agencies altogether. Not only can the reps be bullies, but phone conversations do not carry the same weight as a written debt settlement agreement. Remember the old adage that “a contract is only as good as the paper it is written on...”

When settling a debt always send everything certified, return receipt requested. This is the only means you have of proving that the creditor, credit bureau or collection agency received your communication.

Collectors are professional negotiators, driven to earn a living on commission.Never communicate a sense of desperation or urgency to settle your debt. The more you imply you're willing to take your time, the better. Collectors always make an offer to settle based on immediacy. 

Creditors are more willing to settle debts at the end of the month. They have goals to reach and commissions to earn. Use this knowledge to your advantage.

Get terms of the settlement in writing before making a payment. If you have negotiated a deal with a creditor or collection agency, make sure you have a letter outlining the agreement. We have all heard stories of settled debts that come back to haunt. Your only defense is documentation. 

Also, as old-school as it is, pay the settlement by paper check.  Write “Paid in Full”  “This check constitutes full and final payment...”  If you use a credit card,
check by phone, ACH or other means you basically have no proof of payment to
document your settlement.

Remember, when the time is right for YOU to settle a debt, for less than the full amount owed, be sure that you are getting what you paid for.

Patrick Ingegno can be reached at inner-circle@optimum.net or www.innercircledebtsolutions.com