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Can You Settle Debts That Are Already in Collections?

Can You Settle Debts That Are Already in Collections?

Getting calls from debt collectors is stressful. You may feel embarrassed, angry, or scared about owing money. But there are ways to take control of the situation.

The good news? You often have more room to negotiate with a collector than you did with the original creditor. Collectors buy debt for pennies on the dollar, so getting any payment from you is profitable for them.

This article will walk you through your options for settling collections debt. We’ll cover:

  • Confirming whether you actually owe the debt
  • Calculating a realistic repayment plan
  • Making a settlement offer
  • Getting any agreement in writing
  • Watching out for debt settlement scams

Let’s dig in!

Make Sure You Actually Owe the Debt

Before paying a collector, verify the debt is truly yours. Collectors sometimes try to collect on the wrong person’s debt. Other times, the amount they claim you owe is wrong.

To verify a debt:

  • Ask the collector to provide proof you owe the debt, like the original account statements.
  • Check your credit report to see if the debt is listed and matches what the collector says.
  • If you don’t think you owe the debt, dispute it in writing. Send your dispute letter by certified mail and request a return receipt.

Disputing a debt requires the collector to stop all collection efforts until they verify the debt. If they can’t verify it, the account must be removed from your credit report.

Calculate What You Can Realistically Repay

If you determine the debt is truly yours, think about what repayment plan you can manage. Consider factors like:

  • Your current income and expenses
  • Whether your financial situation is temporary or permanent
  • Competing financial obligations like other debts or savings goals

Be realistic. There’s no point agreeing to payments you can’t afford. You’ll only fall behind again.

Some options to consider:

  • Small monthly payments, like $25 or $50
  • Larger monthly payments, if you can afford them
  • Paying a percentage of the debt, like 10%
  • Paying off the full balance over time

A credit counseling agency can also help you manage the debt. They work with collectors to arrange debt management plans.

Make a Settlement Offer

Once you’ve chosen a repayment option, make your offer to the collector over the phone or in writing. Explain your financial situation and why you can’t pay in full.

Be polite but firm. Don’t take the first offer they give you. Negotiate the best deal possible.

Some tips:

  • Start lower than what you can afford. For example, offer to pay 10% of the balance as a full settlement.
  • Mention hardship if applicable, like job loss or illness.
  • If they won’t budge, ask to speak to a supervisor.
  • Consider increasing your offer slightly until you reach an agreement.

One-time lump sum settlements often get the biggest discounts. But don’t agree to pay more than you can manage.

Get Any Agreement in Writing

Verbal promises from collectors are not legally binding. Before paying anything, get the agreement in writing.

The written agreement should state:

  • The settlement payment amount and due date
  • That payment will satisfy the debt in full
  • The collector will stop all collection activity after payment

Keep a copy of the signed agreement for your records. And only make payments by check or money order so you have proof.

Watch Out for Debt Settlement Scams

Some companies promise to settle your debts but take your money without delivering results. Warning signs of a debt settlement scam:

  • Charging large upfront fees before settling any debts
  • Guaranteeing they can make debt go away or repair your credit
  • Telling you to stop paying creditors and pay them instead
  • Refusing to provide a contract or other details in writing

A legitimate company will explain your options, charge reasonable fees, and be transparent. Get promises in writing before paying anything.

What About Debt Past the Statute of Limitations?

If a debt is past your state’s statute of limitations, collectors can no longer sue you. But they can still try to collect through calls and letters.

Be careful – in some states, partial payment or verbal acknowledgement of the debt can revive the statute of limitations. Talk to an attorney before making any payment on old debt.

You also have the right to send a cease and desist letter requiring collectors to stop contacting you about a time-barred debt.

Focus on Your Financial Future

Settling collections accounts can provide relief and let you move forward. But don’t stop there. Take steps to manage your finances and credit so you can avoid collections in the future.

Some tips:

  • Build an emergency fund to cover unexpected expenses
  • Make a budget to balance income and expenses
  • Pay bills on time going forward
  • Keep credit card balances low
  • Review your credit reports regularly

You have options for resolving debts in collections. The important thing is to deal with them so you can improve your situation. Don’t ignore calls from collectors – take control by verifying debts, negotiating settlements, avoiding scams, and revamping your finances.

If you receive a call from a debt collector, the first step is to verify that you actually owe the debt. Debt collectors sometimes try to collect on the wrong person’s debt or for the wrong amount. Ask for proof of the debt in writing, like account statements from the original creditor. You can also check your credit report to see if the debt is listed there.

If you determine the debt is legitimate, don’t immediately agree to pay the full amount. Debt collectors typically buy debt for pennies on the dollar, so even getting a portion of the balance from you is profitable. Consider making a reasonable settlement offer based on what you can afford. Explain your financial situation and negotiate the best deal possible.

Get any agreement for reduced payment in writing before sending money. The agreement should state the settlement amount and that your payment satisfies the debt in full. Only make payments by check or money order so you have proof.

Watch out for debt settlement scams. Legitimate companies will be transparent about fees and provide details in writing. Never pay upfront fees before debts are settled.

If the debt is past your state’s statute of limitations, collectors can still try to get you to pay, but they can no longer sue you. Be careful – even partial payment can revive the statute of limitations. Talk to an attorney before paying on old debt.

While resolving collections accounts can provide relief, also focus on improving your finances long-term:

  • Build an emergency fund
  • Make a budget
  • Pay bills on time
  • Keep credit card balances low
  • Check credit reports regularly

Dealing with debt collectors isn’t fun, but avoiding them will only make things worse. Protect yourself by verifying debts, negotiating reasonable settlements, avoiding scams, and taking control of your finances.

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