Negotiate a Debt Settlement - Lump sum settlement (and other credit issues)?

Lump sum settlement (and other credit issues)?

Hey everyone... I'm in debt. Not horrible debt, around $12,000 total (not including student loans..which are in good standing). Most of it is credit card debt, and a repo'd car loan. I've made it my new years resolution to get myself out of debt, or at least on the right track. I pulled my credit report, made some calls and already have a couple minor things paid off on my credit report. I recently received a letter stating that a $3,350 credit card debt could be paid off for a lump sum of $1,350 to Midland Funding LLC (the letter is from a local law firm here in Louisville, KY). How should I proceed with this? I mean, it's obviously a good deal...saving $2,000 in the long run. But what about getting it off my credit report? How would paying this off affect it? Will it still negatively affect my credit? Can I demand it be removed from my report after I pay it? What about other similar debts? Can I negotiate a lump sum settlement? Any suggestions or advice on these matters? Thanks for the replies everyone! As for how old the debts are, they are pretty old. The $3,350 one's last payment was 4/2004. First major delinquency reported 12/2004. There's another one for 5/2005 on my report. And one is for 8/2004.

Public Comments

Jump on that offer. Midland is a reputable company. See if they will delete it from your credit report. As for your other debt. You can offer lump sum settlements, they like that the best, and you can use that as a negotiating tool.(lump sum over payments) call at the end of the month for the best deal. Good luck!
Yes, you can negotiate other lump sum settlements and you can ask that the item be deleted from your credit report for payment. Some will and some won't. Get any settlement agreement in writing and do not give them access to your bank account. If the creditor doesn't remove the item from your credit report, paying won't really increase your score. However, paid old debt looks much better than unpaid. Creditors do look at the whole credit report not just the score. Another thing to remember when you settle for less than full payment is that collectors will send you a 1099 for forgiven debt of $600 or more. You will have to include this in your income tax return and pay taxes on the forgiven amount. Still cheaper than paying the whole amount.
The first thing you need to do is DO NOT talk to these people over the phone. ONLY make offers of settlement through certified mail so that you have a paper trail. DO NOT send any money to any company until you have an agreement you can work with in writing from them. You did not mention how old these debts are. But there are two things you need to look at. The first is the Statute of Limitations. This is the period of time they have to sue you for the debt. Depending on the state and type of debt it is anywhere from about 2 years to 15 years. If you are outside of that the only thing they can do is keep it on your credit report for 7 years. You can use this to your advantage when negociating with them. As for removing the item from your credit report. You can ask that they remove it. They generally will if you pay in full, but depending on the age of the debt they may not if you settle for less. But you need to get this in writing BEFORE you send them the money, as once you pay them off you have lost your leverage. As long as it remains on your credit report it does not matter if you pay in full or settle for less as there is still the listing showing you had problems. But since it shows as paid it would still be better than unpaid. Another minor issue is that you will owe taxes on any amount you settle for. So in your case where they will settle for $2,000 less you will be issued a 1099-c and need to pay taxes on that amount at the end of the year. This is less than the amount of the debt. However, if you do not the IRS will catch up to you in a few years and you will then owe penalties and interest to them.
OC is correct on this one. I constantly preach to people never pay off a debt unless the creditor agrees IN WRITING to DELETE the item from your credit report. Here is why. 1) Paying off the debt does NOT remove negative information from your report. It will still show a collection/charge off, and it will be reported as a negative. The only thing the creditor is required to do is show a zero balance. 2) Paying off a debt will update the activity on your account. Your credit score gives more importance to recent activity then old accounts. Therefore, lets say you pay off a 5 year old debt. Currently debts this old do not hurt your score that much, but once paid it turns it into a new activity, and can actually LOWER your credit score! Trust me on this one, go to MYFICO and research it. The collection agents sure will not tell you this stuff. So unless they delete it, do not pay the debt. Remember, your goal is to fix your credit score. Why on earth would you pay them money and still end up with bad credit?
Are you sure you can pay the lump sum and write it off? If this letter is definately legitimate then proceed. But make sure it is, incase its a scam. It sounds odd that they would say you can pay 1/3 of your debt with them without you asking to come to an arrangement with them. Make an appointment with a debt advisor, their services are usually free and they will tell you exactly where you stand. Good for you deciding to get yourself out of debt. Its best to get some proper advice, because there may be other debts that can be lessened. You cant demand anything is taken off your credit report unless it is a mistake. It will stay there for 6 years.