Settling an unpaid debt is a great way to clean up your financial life, feel like you’re in control and can let go of any negative emotions you’ve been carrying along with that debt! AND, you may be able to have the debt removed from your credit report when you pay it off.
Unpaid debt negatively impacts your credit score, and can hang over your head and make you feel like you are less responsible with money than you actually are. Let’s take back some control!
Your Options for Repaying Debt
You have a few options when it comes to unpaid balances that have been sent to collections:
Negotiate with the creditor (the company or collection agency to which the debt is owed) a settled payment amount that is less than the full balance. In this case, the collection entry will remain on your credit report for seven years from the date the debt became delinquent, even if you pay it off.
Negotiate with the creditor to have them remove the collection entry from your credit report upon receipt of the settled amount (this is called a Pay for Delete agreement). In this case, the collection entry is immediately removed from your credit report, and your credit score improves.
Note that the creditor wants you to pay off the debt, many times they are willing to agree to a lower settlement amount to avoid a lengthy collection process or losing repayment altogether due to bankruptcy.
However, paying off the remaining debt doesn’t remove it from your credit report right away. It could take 7 years to stop negatively impacting your credit, which is why you might want to attempt a Pay for Delete.
Pay for Delete
Here’s how a Pay for Delete works:
A creditor reports an unpaid balance on your credit report. You contact the creditor, and offer to pay the balance off if they agree to delete the collection entry from your credit report.
If the creditor agrees to delete the entry from your credit report, your score can immediately improve. Otherwise, the collection can remain on your report for seven years from the time it becomes delinquent, even if you pay it off.
If you’re dealing with a debt collector, make sure you fully understand the debt. You need to know who you owe, how much you owe and how old the debt is. Then come up with a realistic repayment or settlement plan.
If your debt has been sold to a third-party debt collector, you’ll have to contact the new debt owner, or the collection agency they’re using, in order to resolve the debt. Be clear about your financial situation. If they know you can’t afford to pay much, that could make them more willing to accept a lower settlement offer. Before you send them any money, get your agreement in writing.