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Dear Debt Adviser,
I am trying to repair my credit. Currently, I have three older accounts in collections and have the ability to
pay all off in full.
What is the best way to go about doing this? Can I simply call and make the payment over the phone?
Or, do I need to get something in writing -- and if so, what?
-- Kelly
Dear Kelly,
Congratulations on being able to pay off your old collection accounts. It is a good feeling to eliminate your debt
and move forward.
Because you have the money to pay in full, I would suggest you write to the collection company (or
call if you can't write), and ask for a written payoff amount and a date when the amount is considered paid in full.
You don't want to end up with a small balance leftover that grows by leaps and bounds for years
and then suddenly reappears. Also, should the account(s) pop up on your credit report again, you will need to show
the credit bureau the written amount owed from the collector along with proof of your payment to successfully
dispute the credit report error and have the entry removed.
Ask the collection company to show you how it arrived at the final number owed. Depending on what
you see, you may want to ask for a concession. The principal is due and payable, but you may get the collector to
reduce or waive interest and fees that get added in the collection process.
If the collection company is acting for the original creditor, it may have to get approval before
making any adjustments. If the company has purchased the debt outright, it probably did so at a discount so the
interest and fees may be icing on the company's profit cake.
I'm glad that you want to pay what you owe, but if you feel the fees or interest rate is too high,
you should ask that they be reduced. The collector still makes money and you have a few extra dollars to put into
an emergency savings account.
Be sure you get everything that is agreed to in writing, including that the account will be reported
as "paid in full" or "paid charge-off" (depending on how old the debt is) before you send any money. Incidentally,
a paid charge-off listing means the original debt was charged-off by the creditor, but you still made good on the
debt and paid what was owed.
Keeping a well-funded emergency savings account is the best way to avoid finding yourself in this
position again. Experts recommend that you have between three and six months of basic living expenses set aside for
an emergency.
Lack of an emergency stash leads to using credit for car repairs or other unexpected expenses, and
that can snowball into a debt that lasts longer than a presidential primary campaign!
Don't let the big number discourage you. Just as your small debt grew to a large one, over time a
small but regular savings habit will become that much-desired three to six months of expense cushion.
Paying what you owe will boost your credit score. That and a little time will help your goal of improving
your credit. Your credit should be looking good once you are 12 to 24 months away from paying off these accounts. Just
be sure you continue to pay all your other accounts on time and as agreed to during this time.
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