As a credit repair company or CRO we do not negotiate the settlement of debts for our clients. Credit repair by definition is the process of validating, correcting and verifying the accuracy of information reporting on a consumer’s credit report. The industry is governed by the Credit Repair Organizations Act or CROA.
Under CROA, there are no provisions that allow credit repair organizations to negotiate the settlement of debts for its clients. Additionally there are state specific laws for debt settlement practices that must be complied with. The most common compliance mandate under these laws is you must be an Attorney or law firm in order to be eligible to provide such services.
With all that being said, a credit repair organization is NOT prohibited from providing insight and education to its clients in regards to their rights and best practices when negotiating debts with creditors and debt collectors. . So that’s what we’ll discuss today.
To begin, when a creditor or collector otherwise known as a furnisher claims there are funds owed to them, it is their responsibility to prove the debt is valid and collectable. As a CRO we act as advocates for our clients ensuring the debts listed on their credit reports are in fact valid and collectable. We do not play judge and jury and rely on the data provided from the furnishers to verify the debt.
As consumers if you have entities trying to collect from you, it is our suggestion to first be sure the debt is valid. Validating a debt can be complex, but at the core you want to be sure they have documentation that binds you to the commitment. If they cannot provide such proof, they cannot legally collect from you. This proof can be in various forms and I can write a entire blog on how a debt can be validated.
For the sake of this article, understand there are rights you are afforded. It is in your best interests to make sure you do your due diligence before engaging your furnishers to settle. Once you have gone through this process and said debts have been validated, you have a few settlement options. Today we’ll discuss the top two.
Option One: Settle for full balance in return for deleting the entry from your credit report.
This option is often called payment for deletion. You can contact the furnisher and tell them you prepared to settle the balance in full if they will eliminate the negative entry from your credit report. This can be accomplished successfully under certain circumstances, but there are a couple things you should consider.
First, although this is not an illegal practice, deleting a credit report entry without a legitimate reason is prohibited in the furnisher’s agreement with the credit reporting agencies. If a furnisher does this without a valid reason, they risk losing their ability to pull credit and or furnish information to the credit reporting agencies.
If you are going to attempt this, you will want to first get past the gate keeper. You will need to speak with a supervisor that has the authority to make the request a reality. So don’t be afraid to ask who the manager or supervisor is and leave your number for a call back if they are not available.
Once you have a decision maker on the line, explain to them that you would like to satisfy the debt, but disagree that it should be reported to your credit report. If they can fax or email confirmation that they will delete it if paid, you are prepared to settle the debt in full.
Do yourself a favor and be nice, these companies are trained to deal with conflict and fist waiving will most likely be counterproductive. Kill them with kindness and they just might cooperate. If they agree to delete the account, DO NOT pay them at that moment. There is a notorious practice of agreeing to delete then not following through. When you call back, they’ll tell you “Oh no we can’t delete that, we apologize for any confusion, we can only update it to a zero balance with the agencies. GET CONFIRMATION IN WRITING before you give a credit card number and pay the debt.
For reference, there is no master list of who will and will not delete for payment. That being said, you may have a higher success rate with medical debt, small balance collections and third party debt collectors that may have had recent actions taken against them for poor collection methods. Do some digging on who you owe before you make that call.
Option Two: Settling for less than full balance
What happens if the furnisher is not willing to delete for payment? Moreover, what if you have multiple accounts to pay off and or you have limited funds to do so? Well in that case you will want attempt to settle for less than you owe on that account. Let’s talk about best practices for stretching your dollars as far as you can.
First, let’s differentiate creditors from third party debt collectors. Creditors are the entities that you originally owe the debt to. Third party collectors are companies that purchase the debt at a reduced rate and attempt to collect from you. It is not always the case, but often third party debt collectors are more willing to negotiate lower settlement amounts than creditors.
There is also something else to consider when negotiating for less than the full amount. Your creditors can see your credit report. They may evaluate your other debts when determining what they are willing to settle for. If you tell them you have a ton of collections to pay off and there is only their collection listed, they may respond unfavorably.
So assess your personal situation before making the call, make sure what you tell them aligns factually with what they may see. Honesty is always the best policy and I suggest letting them know you are on a budget (which we all should be) and only prepared to pay X on the account if they are willing to accept that as payment in full. What that X number is depends on the money you have available. I recommend starting at 30% of the original balance and working from there. The furnisher may counter offer with a higher number and you may counter their counter.
Once you have agreed on amount, get it in writing that the agreed amount will be considered settlement in full and be prepared to make payment that day. Do not tell them you need time to get the funds together. Typically these are exploding offers and the collector may play hardball if you do not follow through as agreed. Remember if you both agree and settle, keep that documentation in case the debt is sold to another collector and they try to come after you again, this can happen!
This is about as Cliff’s Notes version as I can be on this topic. There are other dynamics to consider on this topic and you may have unanswered questions. There is only so much that can be jammed into 1200 words but do not fret. We are here every day to help you navigate through your credit challenges and accomplish your financial goals.
Give us a call, email us, or jump on our chat any time, we’ll do everything we can to help.
As always, thanks for reading, I hope you found this helpful!
Credit Repair Resources