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7 Things to Get in Writing When You Settle a Debt



We’ve all seen ads for debt settlement companies claiming they can reduce your debt by negotiating a lump sum payment to the creditor. These companies typically negotiate while (or after) you stop making payments to creditors. Meanwhile, you make regular payments, including fees, to the debt settlement company.

This method may seem like a good deal on the surface, but debt settlement scams abound, and there’s no guarantee that creditors will agree to a negotiated lump sum. Even worse, your credit score may suffer, since payment history affects around 35% of your credit score.

Negotiating to reduce a recent debt or an old obligation exhumed by a collection agency? can connect you with accredited debt settlement professionals. Find out more information here.

1. Debt validation notice

Debt validation notice

Before you pay or agree to pay a debt, ask the creditor or collection agency to send validation of the debt in writing. The validation notice must include the amount of the debt, name of the creditor owed and a description of your rights under the Fair Debt Collection Practices Act. Also, check your state statute of limitations in case the debt is outside the date to collect.

You can use a sample letter from the Consumer Financial Protection Bureau to request debt validation. If you don’t dispute the debt within 30 days after receipt of the notice, the debt is assumed to be valid. Don’t make any payments or discuss the debt with the collector until you receive the written validation notice.

2. Total amount to be paid

Once you come to an agreement on the total amount to be paid, whether in a lump sum or with payments, ask the creditor or collector to send a letter stating the total agreed amount in writing.

Make sure correspondence includes the agreement that any amount of the original debt over the negotiated total payment will be forgiven once the agreed amount is paid.

3. Payment schedule

Payment schedule

If you negotiate a lower amount with installment payments, get the agreement in writing with the exact amount of each payment expected and dates due.

Also, obtain in writing the creditor’s or collector’s promise that the debt will be satisfied when the lower negotiated amount is paid in full.

4. Promise to stop collection efforts

Don’t simply assume that once you negotiate a payment plan for a lower amount, the creditor or agency will call off the debt dogs. Obtain a promise in writing that they will stop all collection efforts while you’re making agreed payments on time.

5. Guarantee to report the debt as paid in full – not “settled”

Guarantee to report the debt as paid in full

The negotiated debt will show up on your credit report eventually, if it’s not on there already. However, even after you pay the debt, it can still negatively affect your credit score for up to seven years.

Ask the entity accepting payment to report the debt as “paid in full” rather than “settled” or “account paid in full for less than the full balance,” two signs of a settled debt that show up as negative marks on your credit history. Then get the promise to report as “paid in full” or “paid as agreed upon” in writing.

6. Breach of agreement terms

The thing about settlement agreements is you must stick to them, or the deal is off. For example, depending on settlement terms, if you miss a payment or pay late, the full amount may be due immediately or the creditor may resume collection efforts.

Obtain in writing any breach of agreement that could rescind the settlement agreement. That way, you won’t unwittingly sabotage your negotiation success.

7. Authorization from the right person

Authorization from the right person
What if Tina from the collection agency makes promises she can’t keep just so you’ll send money to show progress on her account? Unfortunately, the debt collection industry is rife with deception, so don’t take the collection agent’s power to authorize a settlement for granted.

Make sure the person signing a settlement agreement is authorized to stand behind settlement promises and terms. Also, make sure you save all correspondence related to the settlement.

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