How to pay off accounts in collections?

[CarrieN23]

My total debt is $3,196.00 with a credit score of 592. Most of my debt incurred when I was in my early 20's before having kids. I'm 29 right now. Me and my husband would like to get a house next year....hopefully.....but I know I can't with this credit score. My question is should I pay off all my debt in hopes of it raising my score? Also all of the debts are in collections so how do you even go about contacting them to make payments. Any advice would be greatly appreciated!

[disneysteve]

Do you have the money to pay the debt? If so, contact the creditor and ask how you go about paying it off. MAKE SURE THAT YOU DO NOT GIVE THEM ACCESS TO YOUR BANK ACCOUNT!! Pay the debt by sending a money order or cashier's check. Don't let them debit your account.

If you do not have the money to pay the debt but you have some money, call them and make a settlement offer. If you owe $3,200, they might be willing to settle for $2,000 or $1,500 or even less. If you agree on a settlement amount, have them send it to you IN WRITING.

Once you pay off a debt, keep a copy of the check and the paperwork showing the payoff FOREVER as these things can show up years later and if you can't prove you paid it, it can be a hassle.

All of that said, how can you possibly be in good enough shape to buy a house next year? Your credit score will still be a wreck. If you can save up a 20% down payment and a 6-month emergency fund within the year, seems to me you should be able to pay off $3,200 in debt.

[ThePennyHoarder]

Even if you pay the collection it doesn't necessarily mean that it will get removed from your credit report. Certainly it looks better if it has been paid, but it still shows up for 7 years. If you do manage to pay one off you should contact the credit bureaus and challenge the entry on your report. They are legally required to contact the collector to verify the account. If the account has already been paid than most collectors won't bother to respond to the inquiry. If an inquiry isn't responded to in 30 days than it has to be legally removed from your credit report.

[snshijuptr]

Note that it can take a few months for things to show up on your credit report, so don't expect it to change the next day. I added a credit card and it took 2 months before it showed up on our credit report.

[maynard]

Be very wary of paying collection agencies. You need to be very careful and detailed orientated when dealing with them.

Paying the origional creditor and paying collection agencies are totally different worlds. Be very careful who you actually are sending money too. There are many debt and credit forums out there. I would do a lot of research on those forums before you have any contact with the collection agencies

[bjl584]

I agree with Steve on this. If you are having trouble with a debt of $3000, then you are probably not ready to buy a house. I would settle the debt, then start saving up a 20% down payment and build an EF. Then, start to shop for a house. Live where you are until that time.

[CarrieN23]

Originally Posted by disneysteve

All of that said, how can you possibly be in good enough shape to buy a house next year? Your credit score will still be a wreck. If you can save up a 20% down payment and a 6-month emergency fund within the year, seems to me you should be able to pay off $3,200 in debt.

This I understand, it was just something that was hopeful but not set in stone, I mean we haven't found the perfect house and ready to sign papers, NO! I'm starting the nursing program in Summer 2011 so buying a house within the next two years wouldn't happen anyways since I will be jobless come this summer. My main concern was getting this debt paid before then and how to go about doing it. I've read online you can write letters but I wasn't sure how much progress I would get by writing a letter as opposed to a phone call directly to the company. I work for a bankruptcy attorney so I deal with creditors all day long. Thank you for your advice and everyone elses as well

[Kris Jarczyk]

Very good advice, if you do pay a collection agency all or negotiate a lower pay off amount, get a paid in full or paid as agreed letter from them. Check your credit within a few months to make sure they reported accurately the payment to all 3 credit bureaus. If not, dispute the collection and they have 30 days to make the correction.

[cjscully]

There are two different types of negotiations that can occur with debts in collection:

1. As has been discussed already, you can negotiate a discount on the amount owed.

2. You can negotiate how the account is reported to the credit bureaus (or if it's reported at all). Contact the debt collector and let them know you want to take care of the account and that you want the collection item removed from your credit report. (The collector who makes the report to the credit bureaus can also remove it from the files.) Very often the collector will demand payment in full in exchange for the deletion. If your goal is to improve your credit as quickly as you can so you can eventually buy a house, that's not a bad deal. Incidentally, if you have an unpaid judgment on your credit report you can negotiate with the creditor's attorney to have the judgment vacated by paying the debt in full plus all attorney fees and court costs (including the filing fees necessary to vacate the judgment). Not all collectors/attorneys will agree to these proposals immediately but if you're persistent and persuasive you can usually get them to come around.

[Bastille]

Debt collectors do not have to remove accurate entries from your credit report, even if you offer a settlement, so not all debt collectors will agree to this scenario.

[cjscully]

Originally Posted by Bastille

Debt collectors do not have to remove accurate entries from your credit report, even if you offer a settlement, so not all debt collectors will agree to this scenario.

No they don't have to but some will. Not all of them will. You won't know unless you ask. If you ask and they refuse you lose nothing. If you ask and they agree you gain a lot.