As effective as disputing items with the credit bureau may be, it does have its limitations. Of course, if the item was correct as originally reported, it will often be verified by the creditor. In cases where your story conflicts with the reporting creditor, the bureau is going to side with the creditor-unless you have a strong documentation of the error. The next level of your defense system is to aim directly at the source, the reporting creditor. These methods are disclosed with two assumptions: The reader is a person of integrity and would not use these methods to commit fraud.
The reader is working with very limited financial resources, and must get the maximum rate in exchange for dispersing those resources to numerous creditors.
Vital Assessment Of Your Position
If you have a little cash to throw for your credit problems, you should be able to make good progress with negotiations. Negotiating with the original creditor creates a win-win situation where the creditor gets a good chunk of the principal back, and you in turn get an improved reporting of the debt in your file, plus a reduced settlement in many cases.
NOTE: You must negotiate with the firm that reported the item on your credit file, be it a collection agency or the original creditor. Only they can change the reported status of the account.
1 - Accuracy and Proof First, look at the accuracy of the information. If you can prove the information is incorrect based on your documentation, then you can afford to be very firm in what you demand. On the other hand, even if the information is incorrect, but you cannot document that fact, then you must take basically the same negotiating position as you would if you were attempting to remove accurate, yet negative, information.
That would be to posture your self as an amicable, good person trying to overcome the aftermath of negative circumstances through negotiations. In other words, you are trying to go back and, to the best of your ability, historically undo a very difficult time in your life.
2. Is the debt secured or unsecured? If secured, that means that the creditor has possession of an asset, or title to an asset belonging to you. In matters such as this, you have less leverage with the exception of disputing inaccurate information.
But in situations where you are attempting to link the size and haste of your payoff to “how the creditor will report it on your file, " you virtually have no leverage. The creditor can just seize and sell your assets in most cases.
If the debt is unsecured, then it's a whole different ballgame. Most consumers overestimate the risk involved with overdue debts. They worry about possible repercussions such as wage garnishment and property seizures by their creditors. The fact is, very few creditors will push all the way to a garnishment on a small unsecured debt.
Garnishments and seizures are the creditor's most terrifying weapons used to collect past due debts, but they are expensive and time-consuming. Even if the creditor went all the way to recover the debt, they probably wouldn't be able to recover enough to offset their collection costs. Therefore, there is very little risk of a creditor taking an unsecured debt past simple collections.
It is important to remember, however, that the creditor would be in his rights to get a garnishment and seize property, even for a small debt. There is some risk of financial reprisals when a debt goes unpaid.
Many consumers fold under the perceived strain of unpaid debts. Hundreds of bankruptcies take place in the United States each week for amounts under $5,000. These consumers are so intimidated by their creditors, that they flee to bankruptcy, even though bankruptcy can bring total financial devastation for at least the next ten years.
If these same consumers had simply waited, and ignored the threatening letters and telephone calls, they would have realized that their creditors were all bark and no bite. Bankruptcy is the best option for some few consumers, but it is much overused. And, when a consumer files for bankruptcy, everyone loses, especially the creditors.
3. Size of The Debt Consider the size of the debt. The smaller the outstanding balance, the greater your odds for success because it becomes less cost effective for a creditor to pursue. Most creditors will not devote a lot of effort to collecting just a few hundred dollars. However, if the amount is less than two hundred dollars, a creditor may not even devote the effort to negotiate.
4. Age You also must consider the age of the debt and its status. Eventually, a creditor will give up an attempt to collect on a debt, and in order to gain some financial benefit will write it off as a loss and take a tax deduction. This is referred to as a charge-off or a profit & loss. If this is an old debt that was charged off by the creditor, it doesn't mean that you no longer owe the debt; it simply shows that they have given up hope of collecting it.
If they take legal action and get a judgment, they risk getting nothing, or it may take years before they get a penny. Most creditors would much rather have something guaranteed than pursue the expense of legal action with a risk of getting nothing. A few states won't even allow anyone to garnish wages, which means they would have to wait until you sold a major asset and had to clear the title before they could enforce their judgment. So it is possible that a collection agency may call you after a year or even two years of silence. Realize then that they are not collecting on behalf of your original creditor; they simply took a gamble by purchasing a batch of old bad accounts dirt cheap to try to make some money.
5. Recent Payment History It may sound strange at first, but if you have been paying your bills on time recently, the creditor will be less inclined to settle for less. The logic being that they are getting their money now anyway. If you have been chronically late and it looks like you could go belly-up any day now, then they will sense a real potential for loss and be much quicker to accept a reasonable offer.
This is by no means meant to imply that you should stop paying your bills so that your creditors will be more likely to settle with you. This is merely to help you access your negotiating position as affected by your most recent payment record.
Also, major considerations are things such as the laws of your state, as well as your prognosis of your ability to repay the debt at some point in the future. Will you have more money to put toward the problem in the near future, or is this as good a shot as you're likely to get?
In spite of the fact that the creditor of the unsecured accounts is in a compromised position to deal with you, some may not settle for less. You will be amazed and possibly angered by the bureaucratic stupidity of some of the larger institutions. Realize that much of the time, you are dealing with a person who doesn't really care one way or the other.
It’s not their personal money; they will still have a job tomorrow whether you pay or not. A few others may be on their on personal power trip. Or, they may have had a fight with the spouse just this morning and running on a short fuse.
Additionally, some creditors will issue a company-wide policy regarding settlements. For example, most utility companies will not settle for less than the original amount. Another example is Discover Card. Currently they will not negotiate with you. Obviously, they feel that by building a reputation as a “hard nose, " they can reduce their losses in the long-term.
No doubt, many other creditors are watching them. In the meantime, there are scores of other creditors who want to-and need to-negotiate settlements to get cash coming in. They can't afford to just write debts off on principle or to curb long term losses for any reason.
For them, the short-term is all that matters. The point for you to remember is that - you don't have to (and you won't) win them all. Just a portion agreeing to a settlement will allow you to turn things around.
Regards: Regis Sauger www.yurcredit.com
Regis Sauger is a licensed Mortgage Broker in Florida, an author, lecturer on credit awareness. He have conducted seminars for underwriters, attorneys, mortgage lenders, realtors and the general public.