How to Settle Collections & Debts

When you are unable to pay your bills and debts, a collection agency may acquire the debt. A collection agency collects a debt on behalf of the original creditor. An agency may have contacted you by letter or by phone in an attempt to collect a debt. Perhaps you ignored their calls or letters, but now you realize that ignoring a problem does not eliminate it. Paying your debts is essential if you want to buy a house or obtain other types of loans. There are steps you can take to settle collections and debts.

Instructions

1

Determine how much you can afford to pay. Plan to pay the debt in full if it is a legitimate debt and you have the money to do so. If you cannot afford to pay the balance in full, figure out what you can afford before talking with the agency. Do not feel pressured into making promises that you cannot keep.

2

Contact the agency to discuss the terms of repayment. If you cannot pay the debt in full, negotiate a lower payment. The agency will often accept a reduced amount to settle the debt. Determine whether you will make a lump sum payment or set up a payment plan.

3

Negotiate your credit report listing. It is possible to obtain a more favorable credit listing, though this is not guaranteed. Ask the agency to remove negative entries from your credit report. If you settle the debt for less than you owe, ask the agency to list the account as "paid" rather than "settled." A "paid" entry looks better on your credit report because it shows that you are diligent about paying your debts.

4

Put the terms in writing. If the agency does not do this, draft an agreement letter that stipulates the terms of the settlement. State the time and date of the conversation, the amount that you agreed to pay, the payment time frame, the method of payment and any special stipulations such as adjustments to your credit report. Specifically state in the letter that the debt is considered paid in full once you make the agreed upon payment. Sign and date the letter. Make a copy for your records.

5

Pay the debt. Do not give the agency a post-dated check or electronic access to your bank account. This increases the risk of unauthorized transactions after the debt has been settled. Obtain a money order for the amount due. Include the agreement letter with your payment. On the money order, write that the agency's acceptance of the payment indicates acceptance of the enclosed terms. Send the payment and letter by certified mail and request a return receipt.