7 Points You Should Have in Writing When Settling Debt

by Darwin on August 23, 2020

You have likely seen advertisements from debt settlement companies who say they can reduce your debt and negotiate one payment to your creditor. The companies often do this either during or after you make payments to your creditor. You will make payments to the company, which includes fees. It could seem like a good idea at first, but the creditor might not agree to the sum. In addition, you have to avoid debt settlement scams.

No matter how you choose to settle a debt, it can be a viable alternative to bankruptcy. Whether you are trying to reduce a current debt or an old one, there are several things you need to have in writing to successfully settle it.

1. Notice of Debt Validation

Before agreeing to pay off a debt, ask the agency to send the validation notice in writing. That should include the name of the person you owe, the amount of the debt, and your rights with the Fair Debt Collection Practices Act. You also want to look at the statute of limitations to see if the debt is outside of the collection date.

The Consumer Financial Protection Bureau has a sample letter that you can use to ask for the debt validation notice. If you do not dispute it 30 days after you get the notice, then the debt will be considered valid. However, you should not discuss this with the collection agency until you get a written validation notice.

2. The Total Amount Paid

Once you agree on how much you will pay, you should have them send a letter that states that amount in writing. Make sure that this has the agreement that any amount from your original debt that is higher than the negotiated payment will be forgiven after you follow through.

3. A Promise to Stop Collecting

Even if you can negotiate a payment plan or pay a lower lump sum, the creditor might still try to get you to pay more money. Don’t make the mistake of automatically assuming that you will be fine. You should get a written promise that says the creditor will stop all efforts to collect from you after getting the payment.

4. The Payment Schedule

If you can make smaller installation payments, you should get that in writing with the precise amount of each expected payment, as well as the due date. Make sure that the creditor provides a written promise that this will be considered satisfactory after you have paid the right amount.

5. Reporting the Debt as Paid, Not Settled

The debt will eventually show up on your credit report if it is not yet there. But even after paying off this debt, it might affect your credit score negatively for as long as seven years. Ask the person taking the payment to report it as being paid in full instead of just settled. You also do not want it to be reported as being paid for less than the entire balance. Either of these things can be a negative mark on your credit history. Make sure that the collection agency signs an agreement saying it will report your debt as being paid in full, so it does not impact your credit score.

6. The Right Authorization

If someone from a debt collection agency says they will agree to a debt settlement, it might not be valid if it is not the right person. There is a lot of deception when it comes to debt collection, so do not take someone’s power for granted. Make sure that whoever signs the agreement has the authorization to follow through with their terms and promises. You should save every piece of correspondence related to this.

7. What if You Don’t Stick to the Terms?

With debt settlement agreements, you have to do your part and do what you said you would do. Otherwise, the entire settlement is not valid. For instance, depending on the terms, if you pay late or miss a payment, the amount might be due right away, or collection efforts from the creditor might continue. Make sure that you put into writing what will happen if you breach the agreement and what that might look like. This way, you will not sabotage your negotiation success by accident.

Settling a debt is never a fun process, but having a few things in writing can certainly make it go better. It will also ensure that you do not get scammed.

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