Payment plans with debt collectors
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My car was repossess 6 months ago after I lost my job and couldn’t keep payments. It was sold in auction, and I still owe over $5,000 on it. The debt has gone to a collection agency.
They offered me a settlement for $4,000, which I couldn’t possibly come up with. I can only make monthly payments.
My question is: if I set up a 3-years payment plan, how does that affect this item being reported on my credit? When will it fall off my report?
Can I ask them to remove it when I’ve completed the payments?
Payment plans with debt collectors are bad idea
Payment plans with collection agencies are always a bad idea. To start with, they’re not going to agree to a 3-year repayment plan. They will want the debt paid within 6 months. Even if they agree and let you to start making payments, it is very likely that they will sell-off the debt to another collection agency in 6 months to a year, and you’ll have to negotiate a new settlement with them!
Paying debts does NOT remove the negative information from your credit report, nor does it improve your score. The damage is done and nothing can undo it. The negative information will remain on your report for 7-1/2 whether paid, settled or unpaid. Your payments will not be reported to the credit bureaus until the debt is paid in full. Only then will the collection agency update to show the debt is paid.
That doesn’t mean that you should not pay your debts. You definitely should, or they are likely to sue you (See why-pay-off-debts.html).
You would do much better to wait and save up for a lump sum settlement. You can probably settle for 50% in a year or two, unless they sue and get a judgment before.
You can forget about that pay-for-delete letter. Pay for delete agreements are hard to get even BEFORE paying, and are practically impossible to get AFTER you pay.
Make sure that you get a signed agreement in writing before you pay. If you do go with a payment plan, make sure it is detailed – total due, amount of payment, number of payments, due date, etc. NEVER give a debt collector direct access to your bank account. Pay them only with money orders or cashier’s check. See how-to-pay-off-debt.html for a more information.
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