Photo credit: Debt.com
Maybe your health insurance didn’t cover your medical bill. You lost track of the bill, and it ended up with a debt collection agency.
Or, perhaps you canceled your cell phone contract, and were billed for some additional service. You feel this was unfair, but aren’t sure what you can really do about it.
Maybe it was a credit card. You ran into financial difficulties. After 180 days, the account was written off by the credit card company.
In each of these situations, the debt will probably be turned over to a debt collection agency, or sold to a debt buyer. A debt collection agency is typically hired by whomever you owe the debt to.
If the collection agency gets you to pay the debt, they’re offered a commission (a portion of whatever amount is owed on the debt). In some cases, collectors charge flat fees per account they handle. These fees are paid by the original creditor – whomever the debt was originally owed to.
For credit card debts, the debt is often sold to a debt buyer, typically for just a few cents on the dollar. The debt buyer now claims the right to collect on the money owed to the original creditor. In some cases, debt buyers even file lawsuits, to compel payment of a debt they allege is owed.
Both debt collectors and debt buyers are allowed to report debts to credit reporting agencies. There are restrictions on what they can report.
If it has been less than 7.5 years since you first missed a payment on the debt, then the debt may appear on your credit reports. Both debt collectors and credit reporting agencies have an obligation to report debts accurately. If they fail to do so, you might have grounds to sue them.
A single collection account can reduce an otherwise excellent credit score by 100 points or more, especially in the first several years that the account appears on your credit reports. Over time, the impact of the collection will be reduced.
The Basics Of The “Pay For Delete” Strategy
If possible, you want to have a collections account removed from your credit reports, so that it no longer harms your credit score. There are several approaches to making this happen.
One of the most effective strategies is offering to pay the collector, in exchange for deletion of a debt. This is known as “pay for delete.”
Here is how it works: You call up the collector, and inquire as to whether they will agree to delete the account, in exchange for paying the debt. You could also write the collector a letter, but phone calls are often more effective. In this phone call, you’ll offer to pay part or all of the amount owed, if the collector permanently removes the account from your credit reports.
We typically suggest offering around 30% of the amount owed on the debt. So, if you owe $1,000, you offer to pay the collection agency $300, in exchange for deletion of the debt.
Most collectors will settle for between 40% to 70% of what is owed. However, you should always offer lower, to obtain the best possible deal.
With some debt buyers and collectors, like Portfolio Recovery Associates, they will automatically delete your account when you settle or pay the account. In these situations, you don’t have to negotiate the have the debt deleted.
Once you reach an agreement with the debt collector as to how much you’ll pay, you pay the amount required. Within 30 to 60 days, the debt will be removed from your credit reports.
Why Many Debt Collectors Won’t Automatically Delete Paid Accounts
Here’s the issue: Most debt collectors don’t operate this way. In most instances, when you pay a collection account, the collection account will be marked as paid.
Why is this? How come collections accounts are not automatically deleted when you pay part or all of the debt?
To better understand how this all works, you must understand the relationship between debt collectors / debt buyers and credit reporting agencies (like Experian, Equifax and TransUnion). Debt collectors and debt buyers pay credit reporting agencies for the right to report derogatory accounts to each credit agency.
As part of this arrangement, debt collectors and debt buyers sign a detailed legal agreement with the credit reporting agencies. Part of this agreement typically states that a collector will not delete accounts, in exchange for payment.
Many debt collection agencies fear that if they offer “pay for delete” arrangements, the credit reporting agencies will stop them from reporting information. This would be a major blow to debt collection companies. After all, damage to your credit is a tool used to pressure you to pay debts.
For these reasons, it is often challenging to obtain a deletion in exchange for payment. However, don’t worry. There are several strategies (detailed below) which you can try, in order to increase your chances of success.
Offer To Pay The Full Amount Owed
Debt collection companies only earn money when consumers pay debts. Ideally, they’re able to get consumers to pay as much on each debt as possible.
Thus, if a consumer allegedly owes $300, the debt collector is better off getting them to pay the full $300, rather than $100 or $200. It’s hard for debt collectors to say no to extra funds.
If a debt collector is hesitant about “pay for delete”, you can offer to pay the full amount owed. Making more money makes it harder for them to say no to your offer, and thus more likely to honor a “pay for delete” arrangement.
Raise Potential Inaccuracies In The Collection & Reporting Of The Debt
The Fair Debt Collection Practices Act (known as the FDCPA) is the federal law which regulates debt collection companies. The FDCPA provides for legal penalties for a wide variety of forbidden conduct by debt collectors.
It is a violation of the FDCPA to collect on an amount which is not owed. If you owe $300 to a debt collector, and they send you a notice saying you owe $400, that is illegal. It’s also illegal for a debt collector to report an incorrect amount owed (or other wrong information) to a credit reporting agency.
You might not be certain as to whether the amount owed on a debt is incorrectly listed. However, you also aren’t sure that this debt is being reported or collected properly.
In short, you don’t know whether or not the debt is being reported and collected in compliance with laws. You can use uncertainty to your advantage.
You can call up a debt collector, and explain to them that you think you are not certain that the amount owed on the debt is accurate. You can also point out that you’re not sure whether the credit reporting is proper.
They might ask you what you believe is improper. Your response: “I’m not sure, but I can look into it. I am considering speaking with an attorney”
However, you’ll also state that in the interest of resolving the issues, you’re willing to pay the account, if it is deleted. You can point out that you have not investigated the account further, and might find something improper or illegal. However, you’re willing to move on – if the collector is.
In 2020, debt collectors were sued under the FDCPA nearly 7,000 times. Defending these lawsuits becomes extremely costly for debt collectors, and is something they would rather avoid.
The FDCPA requires debt collectors to pay attorney’s fees if they lose a case. Even if the case settles outside of court, collectors will typically end up paying reasonable fees for your attorney.
If you are able to offer a collector a chance to earn money (by settling / paying a debt) and avoiding legal risk, they’ll often take it. If a traditional “pay for delete” offer isn’t available, this is often a good bet.
What To Do When A Collector Is Absolutely Unwilling To Delete A Debt In Exchange For Payment
Sometimes, debt collectors are just really stubborn. They keep rejecting your “pay for delete” offer, and won’t budge. In these situations, you shouldn’t worry. You still have several options.
Speak To A Lawyer, And Find Out Whether You Have Potential FDCPA Violations
As mentioned earlier, the FDCPA places a variety of restrictions on debt collectors. Besides reporting debts accurately to credit reporting agencies, debt collectors are forbidden from calling you during certain hours, making certain threats of legal action, or failing to include certain information in notices they sent you.
If you’re dealing with collections accounts, you should seriously consider having your case reviewed by an attorney who specializes in the FDCPA. An attorney can figure out whether your rights were violated, and if so, what sorts of remedies you’re entitled to.
If you succesfully sue a debt collector, you’re entitled to damages of up to $1,000 per violation, as well as payment of your attorney’s fees. As part of any settlement, you can also have the debt removed from your credit reports, and all collections efforts ceased.
Where should you look for an attorney to assist in an FDCPA case? The National Association of Consumer Advocates is an association of consumer lawyers, which has a director of lawyers who assist in debt collection matters in each state. You might also try Avvo, which is an attorney marketplace that showcases great local lawyers.
Settle The Debt, & Then Fight The Debt
Let’s say you’ve offered to pay the full amount owed. You’ve also spoken to an attorney. They cannot find any legal violations which would justify a lawsuit.
What are your remaining options? Your best course of action might be to pay the debt, and fight it later. How does this work?
First, you settle the debt. Don’t pay the full amount owed. After all, the collector isn’t deleting the debt for you. Why should you give them more money than neccessary?
Next, you’ll want to wait 30 to 60 days. During this time, the debt will be marked as paid on your credit reports.
If the debt is not marked as paid within 60 days, consult with an FDCPA attorney. You might have a case. After all, reporting a debt as unpaid when it is paid is innacurate.
Assuming the debt is marked as paid, you’ll now want to dispute the debt with the collection agency. You should inform them that you believe this debt is reporting inaccurately, and that they may be in violation of the law.
You should also submit a copy of this letter as a complaint with the Consumer Financial Protection Bureau (CFPB). This can put additional pressure on the collection agency, since the CFPB is a federal government agency which regulates debt collectors.
Another option is to work with a credit repair company. While there are many credit repair firms out there, most are minimally effective at best. You should do your research and ask these companies tough questions, before you hire one.
The Final Word
It is possible to have debts deleted, in exchange for payment. This process requires both patience and knowledge. Succesfully executing a “pay for delete” agreement can improve your credit score, and thus your overall financial health.
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