Debt in collections: Do you settle or pay in full?
By Todd Ossenfort
The Credit Guy
The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.
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Dear Credit Guy,
was making payments at the agreed upon amount on my bank card. Then something
happened and they screwed up. Long story short, my debt ended up with a
collection agency. Should I fight for it to be back with the original creditor
and pay it off, or should I settle with the collection agency, which is a third
party? Also, do I pay the amount in full or should I negotiate for a lower
amount? My problem is that now the bank has reported it to the credit bureau, and
I am not sure what it will say on the report. And how long does it take to be
removed from my credit?
my experience, once a creditor has moved an account into collections, they very
rarely allow the account to be moved back. However, it sounds as if your creditor
may have contributed in some way to the fact that your account is in
collection. If so, yours may be a case where the creditor would be willing to
move the account. It never hurts to ask. When you call, I would request to
speak to a supervisor, as the representative answering the phone is unlikely to
have the authority to make that type of change.
you are successful in getting the account moved back to the original creditor,
I would request that the account be re-aged. What that means is once you make
on time payments for several months and have no amounts past due, the creditor
would bring the account current and remove all the late payment and
collection activity from your credit report. Re-aging the account will improve
your credit score tremendously.
the other hand, if you are unsuccessful and the original creditor will not
communicate with you about the account, then you will have no other choice than
to deal with the collector. Your question regarding whether you should
try to settle for a lesser amount than is owed is a personal decision. Were you
to base the decision on how it will affect your credit, it would be better for
you to pay the full amount due. Although your credit score will not improve
with a full payment on a collection account, potential creditors do not like to
see settled accounts. A settled account on your credit report could mean that
you would pay more for credit in the near future should you need it.
recommend that you check your credit reports each year for free at annualcreditreport.com and
review them for accuracy. Any items that you believe are inaccurate should be
disputed with the bureau that reported it. Your credit card account and any
collection account associated with the account will remain on your credit
report for seven years from the first date of delinquency (typically 180 days
in mind that most people have a nick or two on their credit from time to time.
This particular negative hit to your credit will have less effect over time and
will have little impact after two years or so of positive information (always on-time
payments, decreasing revolving credit balances, etc.) added to your credit
care of your credit!
See related: Know your rights: Fair Debt Collection Practices Act, The ugly side of debt collection, Survey: Debt collection calls growing more frequent, aggressive, How to dispute credit report errors
Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.
The Credit Guy answers a question about a debt or credit issue from a CreditCards.com reader each week.
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Published: July 19, 2010