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How to settle with a debt collector

That bill has been sitting at the bottom of your paperwork pile for a while. Despite your best effort, ignoring it hasn't made it disappear.

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Now you've acquired somebody who wants to be your new best friend -- a debt collector.

You can't wait any longer to face it. In fact, many credit experts say too often consumers dodge the opportunity to resolve their money issues with the debt collector.

"If you know you lost your job and you don't have the money to pay your creditors, don't be reactive, be proactive," says Robin Holland, spokeswoman for Equifax, a credit reporting agency.

Many people don't know what to do when it comes to working out a deal with a debt collector. The following questions could help:

True or false?
An account sent to collection can be deleted from your report.
Paid-in-full accounts are better than settled ones.
You can be sued after the statute of limitations ends.
Credit card charge-offs can't be deleted from your credit report.
If you have a debt in collections over $2,000, you won't be sued.

True or false:
An account sent to collection still can be deleted from your credit report.
That's true. A deletion is possible, but that doesn't mean all creditors will agree to it, cautions consumer credit attorney Edward Jamison of the Jamison Law Group P.C. in Los Angeles, which specializes in helping consumers get their credit ratings restored.

Even if the collection agency agrees to a deletion, it's only of limited value.

Maxine Sweet, spokeswoman for Experian, explains that if the deletion letter came from the collection agency, only the collection account would be removed. The original credit or account from the creditor would remain on the report.

"The original creditor can verify to us that the original debt was an error and should not have gone to collection and instruct us to remove both the original account and the collection account," Sweet says.

Jamison explains the creditor deletion gets rid of the account completely. This, in turn, "helps the credit score because it is like it never happened, where a paid collection means you were not creditworthy in the past."

He advises that if the consumer is able to get a deletion, have the letter faxed stating the terms. For instance, it could say: "I, ABC Collection, agree to delete John Doe's collection account with the account number 1854642 in return for John Doe paying X dollars." Make sure it's signed by someone at the company.

The consumer can't demand a deletion without reason, warns Pamela Baird, a collection attorney for Lacy Katzen LLP in Rochester, N.Y.

"If it's disputed and they investigate it and they find the debt has been reported in error or inaccurately, they delete it," she says. "They are telling the credit reporting agency they want that trade line taken off the consumer's credit report."

Craig Watts, public affairs manager at Fair Isaac Corp., says some creditors don't often provide deletions because it can be deceptive.

"One of the main reasons lenders do business with credit bureaus is because lenders want a better view of the risk involved in extending credit to any individual," he says. "Deleting a collection account from a person's history is not in the best interest of the lender because such information is important to a fair assessment of the person's credit risk."

Next: "If you choose to settle, do so for as little as possible. ... "
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