Settling unsecured bad debt with you creditors

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Most consumers don't know that most creditors and/or collection agencies will take a settlement amount for the bad debt you owe them. This is especially true if the account has been charged-off or has been sold to a collection agency.


The amount that companies or collection agencies pay for bad debt from the original creditor varies and depends on the type of account and on how old it is. Below is a simple list on what most bad debt companies pay for the debts on which they are trying to collect.

1) Debts that have recently been charged off: 6 to 7 cents on the dollar.
2) Accounts that are a little older and on which a collection agency resold the debt: 1.5 cents to 2 cents on the dollar.
3) Very old debt on which the Statue Of Limitations has expired on them: A penny or less on the dollar.

To start a negotiation, contact the current holder of the past due debt either in writing or by calling them. Explain your situation and start by offering them a settlement that will benefit you and one you think they may accept. They may counter your offer or if you tell them you can pay them immediately, they may accept it right away. Before you pay them make sure they send you the paperwork in writing. You may also be able to negotiate a payment plan with them if you don't have the available funds up front.

Depending on your financial condition, the money you save by a debt settlement can be considered taxable income. Credit card companies and others may report debt settlements to the IRS, and the agency may consider it income, unless it finds you are "insolvent." You are insolvent when your total debts are more than the fair market value of your total assets. It can be complicated to determine whether someone is insolvent. If you're not sure whether you qualify for this exception, talk to a tax professional.

Remember the above list on how much collection agencies pay for old debt from the original creditor when trying to get a debt collector to take a settlement offer for a old debt. Be strong and don't get angry if the debt collector argues with you. Maintain a calm attitude at all times with them and the collection agent will most likely cave in.

The above information was written in good faith, but we can not guarantee accuracy. If you feel the above information is incorrect or feel you may have some information that can be beneficial to our readers on negotiating bad debt, please email us at help@consumerbadcreditguide.com.