BiggerPockets

I get solicitations from companies offering to legally reduce my credit card debt and get the credit card companies to accept a lesser amount as payoff. Supposed to be entirely legal. What are the criteria for doing this? Do you have to be behind in payments? Do they want all cash? And finally....how does it affect the credit score?

Dear K Gold,
Why would you pay off old debt or settle it when you can just get it removed?
Collections over 2 years old generally do not hurt your score very much. However, if you make a payment or pay off a collection 5 years old, that is NOT hurting your credit score, you will now make the collection CURRENT. That will drop your score dramatically because now it shows as a recent collection.

I know, it sounds nutty doesn't it. If you try to keep in mind that the credit industry is not set up to "help" the consumer but to keep the consumer a slave to debt, then it will make sense.
Its like you get punished for paying off your obligation. Do not pay anything off.

If you are getting harassing phone calls etc, I can help you make that stop. The only time you may be required to pay anything off is if you are applying for a mortgage. The mortgage company may request that you pay off any outstanding obligations. If that is the case, make sure you pay off those debts the same day you close.

I have worked with many mortgage people who do not understand how all of this credit stuff really works and once they run someones credit for a loan, they will tell them to pay off a bunch of stuff hoping that will increase their score by the time they close. WRONG!!! What happens is the clients score drops and they no longer qualify for the loan. So make sure you do it all at the same time as closing.

Also, keep in mind, each state has a statute of limitations for how long a collector can legally go after the debt. Some states its only 3 years.
Yippeee!

Well K Gold, doing what is "right" is an interesting dilema these days.

Think about it, collection agencies are third party companies. If I have a delinquent cell phone bill with at &t and I do not pay it and they send it to collection well, they have violated our contract. I have a contract with at &t , not an outside party.

Once it is with a collection company, now I no longer have the opportunity to do what is "right" and setlle my debt with at &t. In fact, they will no longer talk to me because its been truned over to a third part. This third party now tacks on their fees and begins harassing me with phone calls at home, at my job, calling my neighbors,etc.

Lets say I break down and eventually pay off the debt to the third party and what do I get in return??? My credit score severely drops and the collection stays on my report for 7 years!!!

DOES ANY OF THIS SOUND "RIGHT"??

The consumer is being left with no choice to do what is "right" these days.

The credit card companies WANT consumers to become delinquent. It is much more profitable for them to have delinquent consumers. So who fights for the consumer?

If you were to lose your job and fall behind on your bills and wanted to call your creditors and work out a payment plan, you would think that would be reasonable. Why wouldn't your creditors want to get their money? No. Instead they will quickly turn it over to a third party and sell it off. Why? Because when a credit card company has to sell off bad debt, they get to file an insurance claim for three times the original amount of the principal. So if you ran up $50,000 in credit card debt and it became delinquent....the credit card company get an insurance claim of $150,000.

So you see, the system in not set up to help the consumer. It is set up for the credit card industry and the credit bureaus to make lots and lots of money and there is no voice for the consumer.

What happens to the consumer? Their credit reports end up ruined. They can't get all of these bad things removed from their reports so everything they do costs them more. More in car ins, health insurance, credit cards, loans....they will be paying sky high interest rates (more money for the credit industry).

Oh and what happens to the millions of people that are being harassed daily with phone calls telling them what scum they are for not paying their bills, well....a good portion of them committ suicide. Yes, that is the cold hard reality.

I have a client who is a young single mother. She was being harassed by collection agencies pretty badly. She tried to reason with them ( the worst thing you could do) and they told her that if she could not pay her bills then she was not fit to be a mother and that they were going to call Child protective services and have her child removed. She was a wreck!
I helped her and we got the calls stopped.

It seems doing what is right is not an option anymore. That option is being taken away from us.

Fact..... in order for a debt consolidation company to settle your debts, you will be advised to stop paying all your payments and they will allow them to go into default status of 120 day or more. Your credit will tank and all your accounts included in the consolidation will be closed by the creditor. Since we are only rated on what is open and active your scores will drop even further because you will have no open credit.

First off, no offense Taz but the advice you keep handing out is as usual not based on fact rather than opinion. The fact is that once a debt is handed over to a collection company the original creditor WILL NOT deal with you. You will have to deal with the collection company reporting it. It is my professional opinion that if you cannot afford your debts and are at risk of going into default you do not consult a debt consolidation company rather get in touch with a bankruptcy attorney. They will advise you and the best course of action and trust me your outcome after a year (credit wise) will be much better than dealing with a debt settlement company. Don't take Taz's word for it, don't even take my word for it.. look up the information or call a BK attorney. Don't ever take legal advice from someone on a blog who is offering advice out of the scope of their profession, not only is it a bad idea but it's also illegal.

Alina, I completely agree with you! Taz is way off base. I know you do this for a living as do I, and so I know you have first hand knowledge of what you are talking about. There is a lot of misinformation out there...as is the case with many subjects.

What I said was based on real life experience dealing with consumer advocacy groups that have been trying to expose the credit industry.

I know many people, family included that have had their credit ruined from dealing with debt consolidation companies and BK attorney's.

Many of the BK attorneys are trying to convince people that they need to file BK over $5000 worth of debt, its disgusting.

I know I have really helped many people as I'm sure you have. I like your website by the way!

As for Taz, I did not understand your response to my email at all so i will let that go.

Everyone will have their own opinion about what is the "correct" way to do something. That is the great thing about living in a republic. We have the choice to do business with whomever we want.

Okay here's something new I came across. A company that uses contract law to get your credit debt reduced. Basically, along with the latest minimum payment sent intentionally late, they send a "new contract" to your credit card company with new terms, including a statement that they are assuming the debt. The new contract terms are minimum payments of 10 bucks with zero interest and no late penalty fees, they must continue positive credit reporting on the previous client, (since they are now assuming the debt), and state that their (the credit card company's) cashing of the latest minimum payment is an indication of agreement with the new terms, including stiff penalties for violating the new terms. The credit card company invariably cashes the check, then issues a new statement that includes a late payment penalty, thereby getting them a penalty and reducing the outstanding balance. It goes on like this until the balance disappears in penalties, and the credit card company settles for the terms under contract law or the company who assumed the debt takes them to court and sues for the outstanding debt they accrued in penalties. Anyone heard of this?

I agree David and I intend to do that. I have paid two in full already. I am asking because I am doing research for a website article I am writing and I want to find out the facts.

Ali M wrote: If I have a delinquent cell phone bill with at &t and I do not pay it and they send it to collection well, they have violated our contract. I have a contract with at &t , not an outside party.

Taz is correct. Let's go find an AT&T agreement for service, shall we? Here's the link.

http://tinyurl.com/6d2l6s

Here's the pertinent portion:

MISCELLANEOUS
This Agreement, the signature or rate summary sheet, the terms included in the rate brochure(s) describing your plan and services, terms of service for products and services not otherwise described herein that are posted on applicable AT&T websites, and any documents expressly referred to herein or therein, make up the complete agreement between you and AT&T and supersede any and all prior agreements and understandings relating to the subject matter of this Agreement. If any provision of this Agreement is found to be unenforceable by a court or agency of competent jurisdiction, the remaining provisions will remain in full force and effect. The foregoing does not apply to the prohibition against class or representative actions that is part of the arbitration clause; if that prohibition is found to be unenforceable, the arbitration clause (but only the arbitration clause) shall be null and void. AT&T may assign this Agreement, but you may not assign this Agreement without our prior written consent. The law of the state of your billing address shall govern this Agreement except to the extent that such law is preempted by or inconsistent with applicable federal law.

Ali M wrote: Don't ever take legal advice from someone on a blog who is offering advice out of the scope of their profession, not only is it a bad idea but it's also illegal.

Credible citation, please. :-)

I have read and re-read this thread (hey I'm a poet and didn't know it) and I believe there has been some confusion here.
Looks to me like it was Ali M who posted very incorrect information and the post seems to be an attempt to obtain a credit repair client. Taz's response to Ali's post was correct and backed up by the at&t actual contract.
I think Alina mixed up Taz with Ali.

Taz, the post that Ali mentioned about not understanding your email was not actually an email. I believe she was referring to the thread post but called it an email. Either way, her confusion is not with you, but with the incorrect info she has posted.

All that said, I think it is important to seek the proper legal advice, as suggested by Alina (great advice) when confronted with this type of senario. Getting some opinions from others on a legal matter may not be the best approach.
Just my $.02

If asked will it be removed after payment is made?