Let’s make a ‘debt’ deal

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Dear Debt Adviser,
Please explain how to use “payment for deletion,” or PFD. My grandson can now pay off his debts with a collection agency for the full amount. How can he make sure the collection agency will send a PFD letter to the credit bureaus so his credit report looks good again?
— Julie

Dear Grandma Julie,
Times do change. My grandmother would have whacked me with her wooden spoon if I owed money and it went to collection. Of course, then she would have hugged me and said, “Don’t do that again.” Since wooden spoons are out of fashion now, what is to keep a young man with a spotty payment record on the straight and narrow? Let me suggest his credit report might be just the thing.

Asking a collector to delete an accurate entry from a credit report may teach your grandson the wrong lesson. Yes, he made a mistake, but the level of discomfort he’ll suffer from a dinged credit report and credit score may prove to be a substantial incentive for him to use credit more wisely in the future and save him from a worse fate later on.

Opting for “payment for deletion”
  1. Get everything in writing.
  2. Send your payment as promised.
  3. Check your credit report.

In the event there were extenuating circumstances and either the wooden spoon or the negative credit report incentives are inappropriate, here are some things to consider. The key to negotiating with collectors is to get all terms for payment in writing and in advance of sending any money. Using the leverage of making payment in full only works so long as he keeps the leverage — the payment — until he receives the offer to delete the account from his report in writing. Once he makes the payment, his leverage is gone and the collector is not going to work with him to have the account removed.

My suggestion is for your grandson to write to the collector, offering to make payment in full as long as the account is deleted from his credit reports at each of the three major credit bureaus. In the letter, explain in writing that he will immediately send the full amount due once the collector confirms the terms of the payment agreement, including that the account will be deleted. It is likely that the collector will balk at putting the agreement in writing, but your grandson can ask.

Once he receives the agreement in writing, your grandson should pay the full amount owed. He will then need to check his credit reports to assure that the collector follows up on deleting the account as agreed. I would wait at least 30 days before checking the credit reports to allow the collector time to notify the credit bureaus. If the collector does not follow through, then your grandson would need to contact an attorney to review his rights, regarding the written agreement between the two parties.

Should the collector be unwilling to fudge your grandson’s record, he has the choice of paying what he owes or continuing to deal with the collection activity. If the accounts are 180 days or more past due, the item cannot cause much more damage to his credit score unless it results in a public record being entered for a court summons and possibly a garnishment. Don’t overlook the fact that a collector can only be held responsible for what the collector reports to the bureau. Any reporting that was done prior to the account going to the collector will remain on his report for seven years since it was entered by the original creditor.

Regardless of credit scoring implications, not paying what he owes will complicate his future. Should he want to access credit in the near future, change jobs or rent an apartment, anyone who pulls his credit report will want to see that he paid what he owed, regardless of the age of the account.

Good luck!

To ask a question of the Debt Adviser, go to the “Ask the Experts” page and select “Debt” as the topic. Read more Debt Adviser columns and more stories about debt management.