The first thing you want to do when attempting to settle a collection account is take every opportunity for leverage from the beginning.
Did the collector give you the required disclosures upon initial contact?
Has the collector violated the law with regards to when and how they contact you or third parties regarding the account?
Has the collector made threats that they aren’t allowed by law to make?
If the collector has broken the law, then you should keep documentation of every such instance to use in your negotiations for settlement.
Each violation of the law could mean a $1,000 fine payable to you. Too many of those, and you eventually get the upper hand, depending on the size of the account.
3 Violations of the law could be enough to neutralize a $3,000 collection.
Even on larger accounts, little violations of the law matter because they can give you the leverage you need to force the settlement and deletion of the account.
Steps For Settlement With Collectors
The first thing you should always do before attempting to settle a collection account is take advantage of your right under the FDCPA to have the debt validated against original creditor records.
At best, validation could make the debt go away completely, and you’ll be done with it. No settlement necessary!
At worst, the validation process will give you an opportunity to catch the collector violating the law, as many collectors consistently fail on at least some level in the validation process.
Pay For Deletion
For small accounts, it is often easiest to use the "Pay for Deletion" method. This simply means that you pay the account (say, up to $100) in full in exchange for removal of the collection.
Pay for deletion means that you don’t admit to owing the money, but tell the collector it’s easier to just pay it than fight over it, and offer to do so in exchange for removal.
Cash for Settlement
For many large accounts, you’re going to need to find a good source for cash for settling with the collector. This is where those violations you’ve been keeping track of can start to pay off.
If you can detail violations of the law to the collector in your offer for settlement, you may be able to knock down the settlement amount considerably from what it might have been.
You may still need a substantial amount of money for settlement on a larger collection account. Some ideas for how to get it might be:
1. Friendly loans – loans from friends, relatives, or other sources that (preferably) will stay off your credit and that can be used to settle with collectors and creditors.
2. Sell stuff – You can sell stuff you don’t use, have a garage sale, or try to get rid of some of that junk in your attic on eBay.
3. Do seasonal work – There are seasonal opportunities at various times during the year doing anything from farm work, to retail sales, to firework stands for the 4th of July. Work like this can be a good way to come up with a lot of money in a short amount of time. It will be hard work, but it can pay off.
If you do not have the funds for settlement, the other (less desirable) option would be to set up a payment plan with the collector. The problem with this is that it will be much more difficult to get them to remove the collection account from your credit if you are just making payments. Most collectors won’t agree to it. Some might though, so it never hurts to try if you don’t have any other choice. (And again, those violations can come in handy here!)
In order to negotiate for the removal of the debt, you should ideally get the agreement in writing from the collector.
The next best thing will be to have your outgoing letters describing the agreement, and then get a collection agent to agree on the phone (in a recorded phone call, preferably) to removing the item from your credit report in exchange for payment.
Sometimes your documentation for this portion of it will be several letters and phone calls over which the details are worked out.
Once the collector has agreed in one way or another, you can settle with the collector and then ask them to follow through with their part of the agreement.
What If They Don’t Remove The Account?
If they do not follow through and remove the item, then they have violated the FDCPA by using deception as a means to collect.
Another thing some collectors do is say they will accept partial payment as "payment in full", and then still continue to attempt to collect on the remaining portion.
This is, once again, a violation of the law because they are using deception as a means to collect the debt.
If this happens, all that documentation you’ve been keeping becomes very important, as you may have to contact an attorney and escalate things through the legal system.
At the very least, you will have full documentation that you are not responsible for the remaining portion of the debt, and should you be sued in the future, with the help of an attorney you could use this as your defense.
And once you have paid the collector either "payment in full" or the agreed upon portion thereof, they have very little reason left to keep fighting with you over the account.
If they have failed to keep their end of the bargain, you can make that decision very costly for them by continuing to complaint to the BBB, the FTC, the State Attorney General, and more… and they will probably eventually decide that it’s not worth it to keep reporting the item on your credit.
Disclaimer: Nothing in this article should be taken as legal advice. Always seek the advice of a qualified attorney before taking any action that could have serious legal or financial consequences.