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I am in collections to 3 different agencies because for 6 months I had no money to pay bills. Now I have the money to. They want to set up automatic withdrawals in a 6 month plan. But what I'm wondering is will it hurt or help my credit score if I just pay off the total sum right now? Will doing monthly payments to a collection company help rebuild my credit?
 

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Monthly payment to the credit agency will not rebuild your credit. Do not give them electronic access to your checking under any circumstances. Try offering them a smaller amount and have them send you the settlement in writing before you send a check or just pay it in full.
 

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I totally agree that you should not give them access to your acccounts!!!
 

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Absolutely do not give them access or pre-dated checks. I had many clients who did this and the only way to stop the automatic withdrawals was to close the account. Actually, close the account and move to a new bank just to be sure. As for the pre-dated checks, the cc company ran them thru causing overdrafts even after being told not to do so. You can do a stop-payment but those cost $40 or so in bank fees for each check.

What I would suggest is negotiating with the cc company on cash payment now at a reduced amount. They will often accept a much lower amount for a cash now transaction. Don't send them the balance without trying to negotiate it down. These cc companies often buy blocks of bad debt from credit card companies for pennies on the dollar so they have a lot of room for reducing the balance for cash. As I mentioned in another thread, if you owe $5,000 offer them $2,000 cash now. They might not accept $2,000 but will counteroffer $3,500. At that point you tell them you only have access to $2,500 (don't admit you actually HAVE the money) would they accept that amount. Sometimes it works, sometimes it doesn't, but worth a try. Any amount less than the $5,000 would be to your benefit.
 

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Get everything in writing, too. Collection agencies don't have a good history of honoring a gentleman's agreement.
 

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Great advice given above.

Be aware that any debt that is forgiven can be reported to the IRS as income received to you and you will have to pay taxes on it next year.
 

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Taxes are a % so a good deal. However, you're right you need to be prepared to receive a 1099 for imputed income and pay the extra taxes. I think if you can show that you were insolvent at the time of the transaction, the IRS will not require you to pay taxes on the imputed income.

I also agree to get everything in writing. When you reach a payoff agreement, ask for them to send it to you in writing before you pay them anything. Tell them you hope to have the funds by the time you receive the written agreement. Also, be sure to keep all the information in a folder because occasionally the original creditor will try to collect the bill again. I assume because they didn't keep proper records so its essential that you do.
 

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Oh, I forgot to mention that most of these settlements are time sensitive requiring full payment within 10 days or so. Be sure to get the money to them in a timely fashion.
 

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DO NOT give them access to your accounts.

2nd. I was where you are. You can call the creditors directly and make a deal with them. Ask them if you pay the balance in full if they will take off the collections from your credit report and change it to paid in full with no late marks AND get it in writing. SOME will work with you on this, some may not but you can do this on your own without going through ANY agencies.

Message me if you have any questions.
 

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There are two issues that haven't been covered in the above:

#1 - Verify if you are dealing with the collections department of the original creditor or a collection agency that bought the debt. The rules are different depending on which one you've got. And don't just take the company's word for it. Call your original debtor to see if the debt has been sold or not.

If you're dealing with a collections DEPARTMENT, then you really do owe the company the money and they will benefit from collecting the entire amount. If they accept a lesser amount to retire the debt, they can send a 1099 for the difference because you really did profit from the pay-off and they really did lose money in doing business with you. Dave Ramsey talks a lot about the moral responsibility to pay our old debts. In this case, I think he is right.

But a collection agency is much different. Your original debtor sold the debt to this separate company for pennies on the dollars (pennies! So if you originally owes $5000, the collection agency might have paid the company $100 for the debt). If so, the original debtor has taken the bad debt as a tax write-off. In my mind, they've gotten their money. They've been paid. Anything you pay the collection agency will NOT go to the original debtor. As a matter of fact, the original debtor will have nothing to do with you anymore. Even if you called them and said you'd be ready to pay, they'd have no way to accept your money. Your account with the original debtor is closed.

So dealing with the collection agency is doing nothing but keeping them in business. Quite simply, that IS their business - buying old, noncollectable debts and hounding you until you give them money to make them stop. You know what? THEY DON'T STOP! There have been horror stories of people who have completely paid off debts with collection agencies only to have the debt come back to haunt them 10 years (or more) down the road! When we advise you to keep your records, we are being very serious!

#2 - So when dealing with a collection agency, the first step is to make them "validate the debt". They have to send you proof that you actually owe the money to them. You know what? Many collection agencies can't even do this step. If they can't validate the debt, you're home free! They even have to take the bad debt off your credit report. Which, BTW, is one way you can tell if you're dealing with the collection department or a collection agency. With a collection department there will be one line item on your credit report for that debt. With a collection agency, there will be two - the old one with the original company (which will say "closed") and the new one with the new company which will be active. It just takes a long time for all that to show up so don't rely on your credit report.

Anyway, if the collection agency can validate the debt, then you start negotiating - IF YOU WANT TO! Remember, you no longer owe the original debt. If you pay the collection agency all you're doing is keeping them in business. Because they paid so little to acquire the noncollectable debt, if you pay them anything to close the account, then they will not send you a 1099. The money the receive from you is pure profit. Wait approximately 4 years and if they try to call you, you can laugh at them because in most states after 4 years these kinds of debts are noncollectable. Wait 7 years and they completely drop off your credit report, too.

The next thing to do with a collection agency is to write them and tell them to STOP CALLING. Tell them you will only do business with them through the mail. This forces them to put everything in writing. Every time you write them, you'll save a copy and you'll put a deadline on the letter for when they need to respond. For instance, if you offer to pay them $1000 to retire the debt then make sure you state that they have to respond by mail by August 15th otherwise your offer is null and void. If they respond, then send them a money order - again, keeping copies of EVERYTHING - and ask for a pay off verification when they receive the check.

Post again if you have any questions.
 
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