Settling a debt? Verify it, and get everything in writing

Step-by-step guide to getting rid of old debt, permanently, safely

Question for the expert

Dear Let's Talk Credit,
I am having an issue with a credit card debt, and I am not sure how to handle it properly. I have a credit card account that was closed due to nonpayment. At the time I didn't have the funds to pay it. I am now in a better financial position and am trying to clear up my debt.

After they closed my credit card, they kept charging interest on the card, which has accumulated over $4,000 in interest alone. The total amount due is around $6,200. A collection company keeps calling me to settle the account for $2,000, but I have read that they are not reputable. How can I stop the interest from accruing on the account and settle my card without worrying? Thank you so much for your help. I appreciate it. -- Victoria

Answer for the expert

Dear Victoria,
When dealing with a collection company, it is always a good idea to request, in writing, the verification of the debt. The collector is required by the Fair Debt Collection Practices Act to send you the amount of debt, the company to whom the debt is owed and the name of the original creditor. If the collector cannot or does not provide you with written verification of the debt, do not make payment arrangements with them.

The interest that has accumulated on your account is due to the fact that the original cardholder agreement applies to the account, even though it is closed. To stop interest from accruing on the account, you must pay the debt either in full or as a settlement amount.

If you request verification of the debt and still believe the collector is not reputable, you might consider contacting an attorney who specializes in consumer debt issues. Once you have secured representation, your attorney will contact the collector and all further communication regarding your debt must take place through your attorney.

Your attorney will research the debt and assure that it has not passed the statutes of limitations for collecting via legal action. Should the debt be within the statute, the collector has the option to sue you in court to collect. However, most large debt buying companies pay pennies on the dollar for the debt they are collecting. That fact alone could be why the company is willing to settle your $6,200 debt for $2,000. If they can get you to pay, they will save court costs.

If you do decide to settle the debt and pay the collector $2,000, your attorney will secure the payment agreement in writing from the collector, before your payment is made. Keep a copy of your agreement and proof of payment, just in case you are contacted regarding the debt in the future. Keep in mind that a settled-in-full notation on your credit report is not viewed as favorably as a paid-in-full notation.

Or, if you prefer, you can negotiate with the collector without hiring an attorney. You will need to decide if it's worth the price of hiring an attorney to have the peace of mind that your debt repayment will be worked out by a professional who will assure the debt is cleared.

Let's keep talking!

See related: How debt settlement works, how it affects credit scores

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Updated: 01-22-2018