Avoid These Traps When Settling With A Collection Agency

Sometimes, for whatever reason, you are unable to fulfill your commitment in paying back a loan. After the creditor has been calling you for months in an futile attempt to collect a debt, the both of you may come to an agreement that the best thing for all parties is a settlement of some sort. The settlement usually means that in return for one lump sum of money, the collection agency will consider the debt to be paid in full. As a result, you will be free and clear of that debt.

The lump sum that you and the collection agency agree to will always be only a fraction of the full amount that you owe. In fact, this is the factor that will make the deal possibly worthwhile taking advantage of. But, you can be sure that the deal is most likely attractive to the collection agency as well. It allows them to close out an active account which they are not having success with and yet, still make a profit on the deal.

There is a benefit to both parties if an agreement can be reached on the amount of the settlement. It's a win/win for everybody involved. But before you agree to a settlement there are a few minefields that you should be aware of.

You want to ensure that your credit is damaged as little as possible. So, the first trap to watch out for are things that affect your credit rating. In return for your paying them a lump sum, you want to make sure that no negative information remains on your credit report from them or the creditor that they are representing. Specifically, you want the debt listed as 'paid as agreed'.

Here is what you definitely do not want. You want to avoid having the paid debt listed on the report as something like 'paid - charge off', 'paid - collection', or paid with any other sort of negative connotation. The reason is that payments with negative notations lower your credit rating and make other creditors more leery of giving you credit.

Also, verbal agreements mean little. The second type of unfortunate situation that a lot of people who negotiate with collection agencies fall into is that they fail to get a written agreement. Unless you get it in writing, you really have no proof of what was agreed upon.

The third trap that doesn't even occur to many people is that the creditor may still have a stake in the outcome. You want to ensure that when you submit your lump sum payment that the original creditor has also signed off on the agreement. The original creditor should stipulate that once you have settled the debt, for the agreed upon amount, that your debt is considered paid in full to them as well.

Debt settlement is a time honored method of settling debts between creditors and debtors. From your standpoint, the important thing is that when all is said and done, you are able to maintain or regain your good credit rating.

By: Susanna Berlatsky

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