Payment Plans
If you don’t have all of the cash that you need to pay off your agreed upon debt settlement, you have two options: a short-term payment plan or going on one of their “hardship programs.”
Short-term: You will get the best terms, as stated before if you can make a lump sum payment. Some creditors will still agree to a sizeable debt reduction if you can pay off the whole amount in 3-6 months. If you need to stretch things out to 6 months, you will have less clout but still be in a strong negotiating position. For most companies, being able to pay off the debt in 3 months is the same as a lump sum payment.
Hardship program: Credit card companies are used to dealing with the many debt reduction companies out in the world, and to save time by coming up with a custom plan for each one, they usually have one type of program to place people on who want to pay their debts but need 1-4 years to pay it off. One note here, Discover, as of this writing, just changed its policies to allow people one year maximum time limit to be on their hardship program.
Long-term payment plans: If you’re a great negotiator, you may be able to get a long term payment plan to pay off your debt. I wouldn’t count on it, though. Most credit card companies will try and enroll you in their hardship program. Also, payment plans may come at an interest rate as high as 20%. Obviously, the longer you take to pay off your debt, the more money you will pay. Keep in mind that your debt payment plan doesn’t have to include interest. This is one more thing for you to put on the negotiation table.
Final note: it is to your benefit to negotiate a short repayment period
If your repayment period is 6 months or less, most likely you can avoid paying any additional interest on the balance. Even if your payment plan exceeds 6 months, try to push for no additional interest on the balance during the repayment process. You may find, however that the companies have a set program and negotiating for the interest rate is not possible. It never hurts to ask, though, does it?
Paying via “Check by Phone”
“Check by Phone” is a procedure where you give your creditor your checking account number and they deduct an amount from your checking account. In some cases, credit card companies will only take a check by phone. This is fine. It’s the collection agencies you have to worry about paying using this method.
Don’t forget to negotiate your credit rating!!!
You should always push for a Perfect Pay Rating. Your final goal in negotiating your credit rating is to get the creditor to list your credit rating after the settlement as “Paid as Agreed” or “Account Closed - Paid as Agreed”. Anything other than this listing will have a negative effect on your credit report. One note here: It is getting tougher and tougher to get credit card companies to change negative history to positive history. The only way most of them I talked to will agree to do this is if you pay off your entire balance in full, including all interest and penalties. Despite this, I will go over all the credit rating tips I have. Don’t let credit rating negotiations deprive you of a great settlement offer. In many cases, “Settled” is the best you are going to get. I had one client lose out on a 30% settlement offer because he insisted on a “Paid as Agreed” status on his credit report.
The effect of having “settled” on your credit report
As your mother, father, or teacher has probably told you (no doubt numerous times in your life): “there’s no such thing as a free lunch.” Sometimes (but rarely) you can negotiate for an untarnished credit rating with a debt settlement, but this is getting increasingly tough to do. In most cases, when you settle with a creditor, your credit report will say “settled” next to the account for which the settlement took place. This has a negative affect on your credit score, meaning it will go down, and depending on your overall credit report (credit scoring is too broad a topic to cover here), it could put a major hurt on credit report.
You should weigh the fact that even if you have 90 or 120 days lates, these may have less effect on your credit than having a “settled” account notation. Don’t believe what any of the collectors tell you about the effect something will have on your credit. They don’t have the first clue. I helped a friend to settle her debts and I talked to a representative of a major credit card company and she had no idea how anything would be reported on a credit report. She told me that negative entries would fall off after 2 years, which is absolutely not true. I quoted Section 605 of the Fair Credit Reporting Act, and there was a long silence, and then an “Oh.”
For the advanced and ultra-smooth negotiators
If you are the ultimate negotiator and you love a near impossible challenge, you can try to get a credit card company to give you a perfect rating. Here are some things to keep in mind.
Some creditors will tell you that it is illegal to change a listing on your credit report. Hogwash. A creditor can agree to change your listing based on a new contract (the one you will negotiate with them to settle your debts) and if you pay per this new contract, isn’t this “paying as agreed”? Absolutely. I would remind them of this point, by the way.
Creditors make their profits by collecting from their customers, not by reporting negative credit information. Because creditors recognize this, they will often agree to delete any negative listing upon settlement of the debt. You have to realize that creditors won’t try to ruin your credit rating as a personal vendetta. It’s strictly business. If it pays them to collect from you and restore your rating to perfect, they will do this. Talk to them in terms of money, not principals or morals. Something along the line of “I know you would love to receive the $3000 I owe you, but it will not help my credit report if you can’t change my rating to ‘Paid as Agreed’. All I have is $3000 and I will pay it to other creditors who will agree to change my credit rating in writing.”
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 sometimes creditors will eventually give you what you want if you speak to the right person, are patient and persistent, and make the right offer.
List the account as “Unrated”. Many times, a creditor will agree to list the account as “unrated”. What does this mean? It means just that, the account is not listed as good or bad. As far as we can tell at the time of this writing, an “unrated” notation for an account does not negative impact your score. However, if the listing is unrated, make sure that any lates on the account are removed, as these lates WILL have a negative affect, even if the account is unrated.
List the account as “Paid” only. You may counter-offer for the creditor to 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” or “Paid for less then owed” only. You may counter-offer that the creditor simply lists 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.” If you wound up with this listing on your credit report, you made no attempt to deal with the credit card company. I’ve never heard of anyone not getting at least a “Settled” notation on their credit report.
