A Trees Full of Money reader writes in:
I’ve been following the debt snowball technique you mentioned in a previous article to help repay my debt. I have also been tracking my progress with your debt snowball spreadsheet and so far things have been going great! My question is, should my debt snowball plan include my old ”charged off” credit card that is now with a collection agency?
Personally, I would NOT include any debts ”owed” to a collection agency in your debt snowball. In fact, I would postpone the snowball and focus on cleaning up the charged off credit card first. Here’s how I would do it:
Consumer Tip: Make sure the statute of limitations has not run out on the debt. In other words, collection agencies only have a certain amount of time (varied depending on which state you live in) to collect on a debt. If the statute of limitations has run out on one of your “charged off” accounts, inform the collection agency. If they continue to harass you for your debt, tell them that you will sue them!
I would pay the minimum payments on all my other debts to keep them current and set aside any remaining money I had available in my bank account.
I would then call up the collection agencies you owe money to (or just wait until they call you) and ask them what your outstanding balance is. When you have about 2/3 of the balance saved make them an offer to accept this amount as “payment in full”.
If they say yes, make sure you get it in writing that they are accepting the money as “payment in full without recourse” before you send the collection agency a dime.
Getting the acceptance letter is very important. It prevents them from collecting any additional money from you in the future should they try to come after you, or “resell” the debt to another collection agency who tries coming after you!
If they say no to your settlement offer, tell them that’s too bad and that it will be a long time before they get any money from you because you are going to make the same offer to the next collection agency on your list.
Remember, collection agencies buy delinquent credit card accounts for penny’s on the dollar and will almost always accept less than what is actually owed on the debt! If they don’t accept your offer at first, keep offering it to them! Collection agencies will be calling you at least once or twice a week asking for your money. Just keep telling them that you tried to make a deal with them and they said NO and you’re now negotiating with another collection agency!
They’ll accept your offer eventually! Good luck, and let me know if you have any collection agency success stories in the comments below!
{ 2 comments… read them below or add one }
Personal experience says you probably only need to save about 50% of the balance before making an offer. I’ve settled a handful of accounts had while the CA was proposing a 50% settlement, I lowballed them and said I had a random dollar amount that equated to 24.7%. They took it!
Move forward a couple months. I had to call the original creditor to inquire about a 1099-C. The corporate collections office rep that I spoke with couldn’t keep her mouth shut… “Oh, yes. I see you settled this account for…. WOW! less than 25%?” “Yes, ma’am” “Wow, we don’t do that, that’s a great settlement you recieved.” “Yes ma’am, I was happy with the terms”
That’s great information Jeremy! I’ve jet to write the article, but I had a chance conversation with guy who was a supervisor for Bank of America in their “collections” department.
He says it’s not like it was 4 or 5 years ago. They realize people have substantially less money than they did in the past and (as you found out) they are acceppting ridiculously low settlement offers! 1/3 or less of the original balance!
Your example of getting a settlement for less than a 1/4 of the original balance is excellent!
Just make sure you get it in writing before you pay them a dime!
Any you’re right about the 1099-c as well! People often foget they are liable to pay taxes on the amount of their debt that was forgiven!