How to Settle Your Debt for Pennies on the Dollar

If your account is still with the original creditor, the negotiation tactics are very different than dealing with a collection agency. Your original creditor has not yet sold your debt to a collection agency, which generally means that your account is not yet 120 days past due. Do not be confused because of an original creditors will have their own batch of collectors. Make sure that you know the difference and who exactly it is you are speaking with. If you are unsure, place a phone call to the original creditor. If they still manage your account they will talk with you. If they already sold your account to the collection agency, they have no legal obligation and cannot communicate with you in any way except to give you the information on who now manages the debt.

Creditors will not even consider a settlement until the debt goes 60 - 90 days unpaid and will settle for between 50 and 80 percent. Keeping in mind that they sell the debt to collection agencies and can write the debt off as bad debt, your settlement offer has to be greater than this figure. A benefit of settling your debt with the original creditor would be that there will not be two strikes on a consumer's credit report, one from OC and the other from collection agency.

Unlike collection agencies, the original creditor will not do things in writing prior to settlement, so it is vital that you keep recordings of telephone conversations and an accurate phone log. Do not pay settlements by phone with a credit card or checking account; never reveal your personal information to the creditor even though they may have some of it already. Mail agreed settlement payments with a certified check or money order sent via certified mail, return receipt requested.

Again, this is where utilizing a professional debt settlement negotiation service would be helpful, by providing a degree of privacy and anonymity to their clients. I cannot stress enough the importance of complete and accurate record keeping. Maintain a file of all correspondence, phone logs and any other information you have regarding the debt.

Once the amount is paid in full with the original creditor, make sure that the account will show "paid as agreed" or at the very least "settled" as it will look better than "charged off" which the account will actually be. A collection marked paid is just as negative as an unpaid collection on your credit report. All your hard work in the negotiation process will be for nothing if this last phase is neglected.

So, with all this information in mind, as well as what we know about collection agencies, I would personally want to have the accounts sent to collection because settlement agreements cost the consumer less in terms of financial outlay. Remember that any damage control can be done at a later time, when the dust settles.