How to Remove Collections From Your Credit Report
Negotiating with your creditors can bring hope back into your financial life. A debt settlement could pull you out of debt even if you can’t pay off every penny you owe.
The best debt settlement agreement could fix your credit report, lower your monthly payments, and get credit card companies and collection agencies off your back.
All the strategies I plan to discuss below require one thing: Getting started right away.
When you put off negotiating with your creditors, you lose options. Every passing week erodes your leverage and hurts your chances of reaching a debt settlement you can live with.
So don’t put it off. Read on, apply these strategies to your credit life, and lower your debt obligations so you can get back in the driver’s seat and back on the road to a good credit score.
Tips To Negotiating With Creditors
Here are some good guidelines to remember as you deal with debt collectors:
Get Agreements in Writing
When you reach a debt settlement agreement, always get the deal in writing before you pay anything or share any bank account or credit card numbers.
Whether you agree to start a payment plan or to make a lump sum payment, you’ll want a written record of the debt settlement before paying up.
Why? Because debt collectors have been known to forget about their side of the deal once you’ve made a payment.
When you have a written agreement you have a paper trail you can use to jog the creditor’s memory.
Making your payment is the best card in your hand. Don’t play it unless you’re sure it’ll pay off.
Stick to the Facts
Debt collectors don’t need the intimate details of your financial life. You also don’t owe anyone an apology for the credit card debt you’ve accrued.
That being said, make sure your creditor knows the basics: “I got laid off and got behind on my monthly payments,” for example.
Or, “We had a serious illness in the family and personal finances have been a challenge.”
If the coronavirus pandemic has impacted your financial situation, make sure your debt collector knows this.
The CARES Act allows for some leniency and prevents creditors from sending negative marks to the credit bureaus unless your account was already delinquent before the pandemic.
Don’t Let Them Scare You
No one enjoys working with debt collectors, but some collection agencies have a knack for pestering you with constant phone calls and threatening you with a wage garnishment, a lawsuit, or even arrest.
It’s your job to stay calm even if you’re being threatened and harassed.
Know that the Fair Debt Collection Practices Act prohibits creditors from making these kinds of threats.
Mention this law and ask for your conversations to be recorded if you think the agent is breaking the law.
Know Your Rights
The Consumer Financial Protection Bureau enforces legislation such as the Fair Debt Collection Practices Act. This law gives you control of your interactions with creditors.
For example, you can request how a specific creditor contacts you — which phone number, what time, by mail only, and so on.
The FDCPA also prohibits creditors from calling other people such as family members or employers to discuss your debt.
In the United States, you won’t face criminal charges because of consumer debt.
However, you could be sued in civil court, assuming the debt falls within your state’s statute of limitations.
And, if a civil court judge ruled against you, he or she could later agree to wage garnishment or a seizure of your assets as part of a court-ordered debt repayment plan.
Consumer debt — especially unsecured debt like credit card or personal loans — seldom gets this far in the court system.
By entering debt negotiations you can take control of the process before your debt has a chance to become a bigger problem.
Step By Step Guide to Debt Relief Through Negotiation
When you know your rights and you’re ready to start negotiating, I recommend following this step-by-step guide to reaching a DIY debt settlement:
1. Gather Your Resources
By resources, I mean money, but also confidence and tenacity.
Let’s talk about money first.
In most cases, you will need to pay at least some of the total amount due to reach a debt settlement on unsecured debt such as credit card bills.
If you don’t have any money available, give yourself a few weeks or even a couple months to fix this problem.
Could you save up some cash? Do you have assets such as a used car you no longer need? Could you borrow enough money from a family member to make a respectable debt settlement offer?
Along with some cash to back up your settlement offer, you’ll need to psyche yourself up for your dealings with your creditor or collection agency.
Know your rights (see above) but also know how far you’re willing to bend before you call your creditor.
2. Make an Offer
Coming up with a debt settlement agreement should take a little time. The settlement process should require some back and forth between you and the creditor.
So don’t be afraid to ask for a lot:
- On active accounts: Ask for the creditor to waive late fees or punitive interest rate increases. Start by offering to pay no more than half the full amount in exchange for canceling the account. Make the payment contingent upon the creditor not reporting a charge-off on your credit score.
- On collection accounts: If you’ve just heard from the collection agency (within 30 days) start by seeking debt validation. You can write a debt validation letter to the agency requesting it proves the debt is yours and is accurate. If the agency can prove it’s your debt, offer to pay half the balance due in exchange for canceling the account and removing all references with the three credit bureaus.
The creditor may say no. In which case you can make a counter-offer. At some point, your creditor will be compelled to make a deal.
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But before sending any payments or sharing your bank account or credit card numbers, get the agreement in writing.
3. Pay and Follow Up
You should have the settlement amount in writing at this point. Send a check along with a copy of the letter to your collection agency or creditor.
After 30 days, check your credit report to make sure the creditor removed the negative marks as agreed.
Log in to the account online to see whether the creditor has closed your account (if closing the account was part of your agreement).
If your check has been cashed but the creditor hasn’t fulfilled its end of the bargain, find your copy of the debt settlement agreement and get back on the phone.
You can also post complaints with the Consumer Financial Protection Bureau and the Better Business Bureau. By following up you should be able to convince the creditor to adhere to its agreement — if you have a written copy of the agreement.
And remember this when tax season rolls around: The IRS considers debt relief a form of income and will tax you accordingly if the debt relief amounts to $600 or more.
Get a Free Copy of Your Credit Report
What Is a Debt Settlement?
A debt settlement is an agreement you reach (in writing!) with your unsecured creditors or, if necessary, with collection agencies. Here’s how it works:
- You agree to pay part of the money you owe, often as a lump sum payment or as a payment plan.
- In exchange for your payment, the creditor cancels the entire debt, removes the negative items from your credit report with all three credit bureaus, and considers the matter closed.
Often you can pay half the balance you owe or even less than half and still get the debt canceled.
Why? Because credit card companies and other unsecured debt collectors know they’ll get nothing if you enter bankruptcy.
Or, if the debt collector is a third-party collection agency, it may have bought your debt from your original creditor for pennies on the dollar.
Just about any amount you pay translates into profit for a lot of collection agencies.
Here’s the bottom line: You still have leverage, even if you have missed payments, made late payments, and have no way to come up with the full amount you owe.
You should begin your debt negotiations with this knowledge.
What About Negotiating Secured Loans and Student Loans?
So far we’ve discussed only unsecured loans such as credit card debt or personal loans.
This kind of debt has no collateral, tends to have higher interest rates, and often has no fixed monthly payments other than the minimum payment.
Mortgages and Auto Loans
Secured loans are different. Mortgages and auto loans fall within this category. With these loans, your lender could repossess the property as payment on the loan.
You have a lot more to lose.
Waiting is your worst enemy with these kinds of loans. Once you’ve entered the lender’s repossession or foreclosure process, you’ve lost a lot of your leverage.
Also, many lenders have debt relief programs you could join. Many auto lenders let you skip a payment every year or two. Some have credit counselors on staff to help you wade through a rough patch.
Lenders have these programs because they lose money when they have to repossess or foreclose on a property. Take advantage of them as soon as you sense trouble ahead.
Student Loan Debt
Negotiating student loan debt is tricky, too. If you have public loans, however, you’ll have several options including income-based repayment plans, forbearance periods, and other government programs designed to forgive your debt.
Private student loans normally don’t have these built-in debt relief programs but you could negotiate a lump-sum payment on a loan that you’ve already defaulted on.
You could also refinance your student loans for better interest rates or repayment terms.
But refinancing public loans into private loans means you surrender valuable debt-relief options later.
Not Into DIY Debt Settlement? Call the Pros
This post has been about do-it-yourself debt settlement agreements.
For all of these strategies, you’d be the person on the phone, the person writing letters, following up with the credit bureaus, and so on.
Credit Repair Companies
If you’re worried about debt’s impact on your credit score, a credit repair company can help — especially if the credit bureaus have inaccurate information on your credit report.
I suggest you check out Lexington Law. They’ll take care of you. Check out their website.
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Debt Settlement Companies
If you don’t have time for this kind of legwork, consider asking the pros to help. Debt settlement companies contact your creditors for you. They negotiate debt settlements on your behalf.
You’d still have to provide the money used for lump-sum payments or payment plans. Since debt settlement companies work with creditors every day they speak the same language and know how to create a debt management plan.
I recommend these debt settlement companies:
- Accredited Debt Relief
- National Debt Relief
- New Era Debt Solutions
- Pacific Debt Inc.
Credit Counseling Agencies
For a more holistic approach to your personal finance life, consider a credit counseling agency.
Credit counselors help you sift through all your debt and come up with solutions such as consolidation loans, refinances, and debt settlement agreements.
For this kind of work consider:
- Cambridge Credit
- InCharge Debt Solutions
Be careful of scams when you seek out a credit counselor. Your financial information and your identity have value to scammers.
Be sure you’re working with a reputable and trustworthy agency.
Once you have a debt management plan, stick to it! Don’t repeat the same mistakes you made earlier — the ones that got you so deep in the hole.
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