Archive for the ‘Debt Negotiation’ Category

Negotiating with Original Creditors

Saturday, December 17th, 2011


Your account is with the Original Creditor if it is still with the credit card company. The negotiating tactics are quite different than a collection agency.

Definition of an Original Creditor

Your account is still with the original creditor if all of the following are true:

  1. Your credit card accounts have not gone to collection.
  2. You are no more than 150 days late on your payments.
  3. And, the credit card company is still managing your account.

As stated above, your negotiating tactics are quite different than those dealing with the collection agencies in the following way:

  • How you pay them.
  • If you need to get agreements in writing.
  • Contacting them.
  • Negotiating your credit rating.

If you are intimidated by the prospect of calling a credit card company, you could try Consumer Credit Counseling Services. Settling your debts is a time consuming ordeal many people find iconfusing and as a result leave it to CCCS, but you will most likely get a better deal if you handle things yourself. CCCS’s main goal is a worthy one, but they often do not negotiate on how the account will be reported, which could leave you debt free, but with a ruined credit report.

If you are panicking about your debt, you might want to read our article on “Handling Debt Stress”.

How do you know your account is still with the credit card company?
Easy. Just call them. Unlike all of my advice on how you should never call a collection agency, calling the original creditor is just fine and is actually the best way to get things accomplished. If you account is still with them, they will start dealing with you. Otherwise, they will just refer you to the collection agency to whom they have turned the account over. As a matter of fact, they will refuse to talk to you at all if your account is in collection.

If you can avoid your account going into collection, by all means do so.
Dealing with collection agencies are a headache and then you will have to worry about two negative marks on your credit. To make sure your account doesn’t go into collection, don’t let your payment get more than 90 days down. American Express will typically send your account to collection after 90 days. With everyone else, you are in dangerous waters after 120 days.

Why Would a Creditor Settle With You

Most credit card companies are not willing to talk to consumers until they are 60-90 days down.
If you think about it, it makes sense – why would they offer to just let half of the debt go if you are current on your payments? Also, if you are current on everyone but the creditor you are trying to settle with, they are not going to be willing to reduce your debt. If they see (by looking at your credit report, which is legal) that you are paying everyone else but them, they are going to feel slighted. OK, this isn’t quite true – but they will feel that since you are able to pay everyone else, you really do have the ability to pay them.

 

Update June 16, 2009:

With the current economy, more and more credit card companies are willing to take 35%-50% of the balance as payment in full. I’ve had some people tell me the credit card companies have called THEM with offers below 50%. If you don’t have lump sum cash, some lenders are willing to spread out the payments over several months. Just don’t look for a payment spread out over more than 6 months. All the more reason NOT to hire a debt settlement company.

 

Other reasons they would settle:

  1. If he believes it is in his best interest (you have convinced him that this is his only chance to receive anything.)
  2. If he doesn’t think that you have many assets (if he does sue, he won’t be able to collect anything from you even if he wins.)

So what does this say? If you’ve been paying on time and all of the sudden call up the credit card company and tell them you can’t pay, they are going to be suspicious and less likely to make a deal. But don’t stop paying your bills just to try and convince them to settle. Have an honest conversation with them first.

You don’t need anything in writing from the original creditors in order to accept a deal.
As a matter of fact, they will refuse to give you anything in writing. That’s ok.

You might want to record the conversation – if you are not in a two party state, then you must inform them you are recording the conversation. What’s a two party state? It means that in some states, only one party on the telephone needs to give permission to have the conversation recorded – and that one party can be you. Check your state for exact federal regulations.

Also, I would keep a careful record log of your phone calls, who you talked to, etc. Just a file or notebook containing all of your notes is just fine.

Paying by checks over the phone, credit cards (I know this sounds crazy) is fine.
I’d still pay with a cashier’s check or money order, but I don’t really see a problem if they insist on taking payment over the phone. Credit card companies are highly regulated, much more so than the collection agencies, and they are, as a result, much more ethical.

If you pay in full, you can get a “Paid as Agreed” rating, otherwise, “Settled” is the best you can do.
In recent years, the credit card companies have adopted a immovable stance on your account rating if you settle for less than is owed. They will agree to list your account as “Settled”, but that’s it. You can always try to get a better rating, but I doubt if you are going to have much luck. Remember, “Settled” is better than “charged off”.

 

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Debt Settlement and Debt Negotiation – What is the difference?

Saturday, December 17th, 2011


Many people are confused by the range of programs which proclaim that you can get out of debt. There isdebt settlement, debt negotiation, and consumer credit counseling.

In most people’s minds, all these types of companies are the same. In my opinion, they are not. We’re going to show you the difference between debt negotiation companies and how their operations are different fromdebt settlement companies. By the way, in case you’re thinking we are advocating debt settlement firms, this is not the case. We are only explaining the difference.

What’s Wrong With Debt Negotiation

Many of the nasty practices by these companies are now illegal, per the new FTC regulations. However, we are going to keep posting their old tricks so you can recognize them if you see them in a firm you’ve hired to settle your debts. Notes regarding the new laws will be in blue font.

Unsecured Trust Accounts. Debt negotiation companies set up a “trust” for you – though they are not a licensed bank entity under the Federal Reserve, but hey, neither is Paypal. They also collect a monthly fee to maintain the account. On top of these fees, they ask you to put away a certain amount of money towards your debt. The idea is to create a savings account until the debt is paid off. Unlike consumer credit counseling services, they do not pay your creditors each month, they put money into your “trust”. You creditors are not told of your “arrangements” with the debt negotiation company. Illegal per the new laws. All monies must be put into an FDIC insured bank account.

Debt Negotiation Companies Don’t Consider Your Current Financial State. Also, unlike consumer credit counseling services, a debt negotiation company doesn’t “qualify” you for the amount of the payment you make, so you can wind up paying very little towards principal of the debt. You can be in this kind of program for years – and the longer you are in the program, the more money these guys make in their “monthly admin” fees. Per the new laws, the firm has to give you a good faith estimate showing you the length of time you’ll be in teh program based on your ability to pay.

 

No Protection From Lawsuits. Even if the debt negotiation programs are run by lawyers, these programs offer you no legal protection. You can be sued by your creditors, they can get a judgment against you and your wages can be garnished! This debt negotiation scenario is also unlike consumer credit counseling where they handle all calls from the credit card companies (but they are also PAYING them for you.) YOU must deal with the nightmarish phone calls.

There are some credit card companies who are agressively suing non-paying customers right now, and if they decide to take you on, they will win. Being sued by the credit card company is not like being sued by a collection agency, who usually has poor documentation and no case.

Interest and Fees Are Not Negotiated. In addition to putting yourself in danger of being sued, there is no attempt to negotiation interest or fees. So they keep piling up on you. It could mean that while you think you are doing the right thing and making payments towards your cards, your debt continues to grow. Per the new laws, the firm has to has to disclose the total amount you have to pay per their past history with an individual creditor.

Only Credit Card Debt Qualifies You can’t negotiate anything that is a secured debt, like an auto loan or mortgage. You also can’t negotiate down student loans, tax liens or judgments.

Fees Are Uusally Paid Upfront. Usually your first 2-4 months of payments go towards fees. There is such a high drop out rate on debt negotation companies that these guys want to make sure they get paid FIRST. Per the new laws, the firm cannot collect any upfront fees before they’ve done work for you.

Most debt negotiation companies claim to be able to negotiate your debt with the credit card companies for about 50% of what you owe. You must realize that after 180 days (6 months), if you are not sued, your debt gets turned over to a collection agency. The negotiation company is NOT planning on talking to the original creditor, but to a collection agency down the line who will accept debt settlement offers fairly easily. Per the new laws, the firm has to has to disclose the total amount you have to pay per their past history with an individual creditor. They can’t claim “best case”, but must cite average case results, including factoring in the drop out rate.

Do You Know What’s In Your Contract? Even if a debt negotiation company did clearly explain what was going on and it was in all of their documentation – based on letters from readers, none of the debt negotiation companies explained what they were doing. All of their victims had a vague recollection that they were paying a management fee, but they had no idea that their credit cards would go into COLLECTION while they were in the program. Per the new laws, the firm has to give you a good faith estimate showing you the length of time you’ll be in teh program based on your ability to pay.

The U.S. Government Accounting Office (GAO) released a report on April 22, 2010 regarding widespread abuse in the debt settlement and debt negotiation industry.

 

Debt Negotiation – How it Works

Example:

Let’s say the company you hire follows all the new laws to the letter. You may still be tempted to sign with them and that’s your perogative. How much money can you actually save?

You have $20,000 in credit card debt and the debt negotiation company says all you have to do is pay $300 for 3 years and you’ll be debt free for about 50% of the debt. $300 a month for 36 months is only $10,800, so you’re saving $9,200 and you’ll be debt-free in 3 years. Sounds like a good deal, right? Wrong. Let’s do the math.

  • You agree to a 3 year plan where you pay $300 a month to the settlement company. $10,800 total of payments.
  • Your first 2 monthly payments are the “admin fee”, so this is $600 – nothing gets put into your trust account until your 3rd month..
  • The negotiation company keeps $50 of your $300 payment each month for the service fee. That means $250 a month is being added to your trust account.
  • After 34 months, you have $8500 to settle $20,000 in debt. Remember, 3 years minus the first 2 months for admin fees is 34 months.
  • The negotiation company, if you are still with the program, will negotiate your debts down to zero with the collection agencies using the $8500.

You save: $9200.
Debt negotiation firm makes: $600 + (34 * $50) = $2300.

Other Dangers Of These Programs

  • So you say, what’s wrong with that – I’m getting a good deal by saving $6000! Yeah, except almost any collection agency will accept 25% of the debt without much of a fight and many will accept 10%. And you don’t have to pay and admin fee to pick up the phone or send in a debt settlement agreement. AND you can mostly make a settlement within 6 months to a year. And be debt free. Here is more about dealing with collection agencies and how they settle. It is REALLY easy to do it yourself.
  • Let’s say of the $20,000 in debt, one of the cards comes to $4000. If the negotiation company gets the collection agency to accept $2000, it will take you, it will take 10 months at $250 per month to have enough in your trust account to pay off just that one credit card. But remember, your first 3 payments to the settlement company only paid the admin fee. That means your first credit card settlement is 13 months *after* you started sending them money.
  • Going back to the example above, if you pay them $20,000 over a 5 year time frame ($300 a month. 2 months admin fee and $50 “maintenance” fees). I’d call that a profit, especially since they might not have actually helped you in any way.

Do-it-Yourself Debt Settlement

Again, you can do this yourself. You can put away some money so you save up 25% of the $20,000, you’ll have enough to have be debt free in 16 months, and it will only cost you $5000. I have to caution you, that this is not going to be a pain free process, you will still have to deal with creditors calling you, and there is the possibility that you will be sued. However, you will be enduring the same kind of telephone calls and possibility of lawsuits if you signed up with a debt relief company. I’ve written up an aritcle on what to expect.

How you can do the same thing without paying a company:

  • Save $300 until you have about 25% of the total.
  • 25% of the total is $5000.
  • After 16 months, you have $5000 to settle the $20,000 debt with the collection agencies.
  • You don’t have to wait until you have the entire amount – you can settle individual debts along the way.

Abuse has gone rampant, and besides the GAO report we mentioned above, the FTC has taken steps against some of these companies.

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Negotiating Your Credit Rating When Settling Your Debt

Saturday, December 17th, 2011


Points to Remember When Negotiating Your Credit Rating

  1. Collection agencies. Always insist on complete removal of a listing from a collection agency. I mean really, who cares if you have a “Paid As Agreed” collection account: no matter what the rating, every collection account is a negative mark. It’s no skin off their nose to change it, and of no use to your credit.
  2. If you do pay the collection agency, you can contact the original creditor and tell them the debt was “settled” and they need to update your account to reflect this. Technically, they are obligated to do this, as this is the truth. For the creditor to NOT do this is a violation of the FCRA. Don’t do this, though, if you plan on disputing the whole listing later, though, through the Method of Verification.
  3. In some cases, you can get the collection agency to change your listing with the original creditor.I wouldn’t count on it, though. Some collection agencies will tell you they have no power over what the original creditor will do regarding your credit. To some extent, this is true. However, both the collection agency and the creditor want their money. If collection agency gets paid, so does the creditor, therefore it is to their advantage to cooperate.
  4. Remember, though, not all collections result from credit cards. Doctor’s bills cannot appear on your report. But collections resulting from these accounts can. In the case of such collections, there is no duplicate negative listing, since the original creditor is not allowed to put a listing on your account, so this collection may legally remain on your report.

If You Have to Accept an Imperfect Credit Listing as Part of Your Settlement

You may find that some of your creditors are willing to hold out longer than you are before agreeing to delete the negative listing from your file. It may seem that they are unwilling to delete the negative listing under any circumstance. Once again, let it be said that every creditor will eventually give you what you want if you speak to the right person, are patient and persistent, and make the right offer. But if you are on a time-line, and your attorney can’t get them to agree to full deletion, you have a couple of other options:

List the account as “Paid” only. You may counter-offer that the creditor list the account as “Paid” rather than delete it altogether. This is a true indication of the status of the account and many creditors will concede and agree to this wording. A “Paid” status is still very negative for a collection account or an account that will show “Paid Charge-off” or “Paid Repossession.” You should insist that the account show “Paid” only and that all other negative notations (such as “Charge-off,” “Repossession,” late notations, or Collection”) are deleted at the same time. A simple “Paid” notation on a regular trade line is neutral and should not hurt your credit.

 

List the account as “Settled” only. You may counter-offer that the creditor simply list the account as “Settled” rather than delete it altogether. “Settled” is an inherently negative listing but not as negative as “Paid Charge-off.” Don’t agree to a “Settled” listing until you have exhausted all other possibilities. “Settled” will still trigger a credit denial. You should only agree that the account show “Settled” if all other negative notations (such as “Charge-off”, “Repossession”, late notations, and “Collection”) are deleted at the same time. If you agree to a “Settled” notation, you must continue to work hard to delete the notation through the credit bureau dispute process.

List the account as “Paid Charge-off” or “Paid Collection” or “Paid was 30-, 60-, or 90-days late.” This will be the creditor’s first choice, and your last choice, of what to place on your credit report once you have paid. These notations are almost as damaging as showing the same debt unpaid. It sometimes happens that an account to be deleted (through credit bureau disputes) once it has been paid. The creditor now has no compelling reason to keep the negative listing on your report. For this reason, it is still usually a good idea to settle even if the creditor won’t budge on deleting or positively modifying the negative listing.

OK, now you’ve negotiated. Next you have to pay. How you pay can make a big difference, so be sure you read the correct ways of paying your debts in part 3.

 

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