• Sample Page

Hanover Mortgages

The Refined Mortgage Lending Company & Home Loan Lenders

Should I Pay the Debt Collector or Original Creditor?

January 20, 2021 by Brett Tams

When a debt exists there are two parties involved – the creditor, who is the source of the loan, and the debtor, who is the receiver of the loan. If you are a debtor whose loan or credit card account goes into default, be prepared to face serious repercussions.

negotiate debt

However, it’s never too late to get your payments back on track, and it’s much easier to accomplish when you’re dealing with the original creditor. In fact, you should try to avoid having your debts sold to a collection agency at all costs.

Dealing with a collection agency can cause a ripple effect in many areas of your life, both financially and personally. Find out why it’s better to settle your debt before it’s sent to a debt collector and how to negotiate with the original creditor instead.

Why should you avoid having your debt go to collections?

It’s better to deal directly with the original creditor than to have your debt sold to a collection agency. Collection agencies are often more aggressive in their collection attempts and may take extreme measures.

The “original creditor” is the first source of the money loaned. If they can’t get you, as the debtor, to pay your debt, they often turn the effort over to a debt collection agency.

Debt Collectors

In some cases, they sell the debt to a third party – a “debt buyer.” A debt buyer is a type of debt collector who pays them a percentage of the total debt to be collected. In most cases, debt buyers pay pennies on the dollar for the debt.

At that point, the debt collector owns the debt and can then proceed to collect the full amount, plus fees, court costs, and interest. Typically, the debt collector can go to court with a lawsuit against you.

If you lose the case, you’ll receive a judgment, oftentimes for the highest amount possible. If you don’t pay the judgment right away, it could continue to accrue interest.

Eventually, you could also be subject to wage garnishment to have the judgment repaid. Plus, having either a collection or judgment (or worse, both) listed on your credit part can do lasting damage to your credit score.

Your best bet is to deal directly with the original creditor and avoid dealing with a debt collection agency altogether.

How do you know if your debt has been sent to collections?

The original creditor handles most debts until they hit about 150 days of delinquency. If you’re only two or three months behind on your payments, chances are, the creditor still holds your debt.

You should receive a letter in the mail warning you that your account is about to go into collections, so keep an eye out for any correspondence from your creditor.

Never throw any paperwork away, even if you’re dreading what may be inside. If you’re not sure if you’ve received a letter or not, call the creditor. Even if you’re at odds with them, they should be a trustworthy source of information regarding your account’s status.

Is it better to pay the debt collector or original creditor?

If the creditor indicates that your account has already been sold to a debt collector, first see if you can ask to have it pulled back from collections. If they won’t do that, it’s important to contact the debt collector and validate the debt. This ensures that they haven’t resold your account elsewhere and that you’re negotiating with the right party.

Hopefully, though, your debt still resides with the original creditor, and you can move forward with them in the settlement process. This is also why it’s important to stay on top of correspondence and not put off dealing with defaulted loans any longer than necessary.

Dealing with a Debt Collector

If you must deal with a debt collector, you should first be aware of your rights under the Fair Debt Collection Practices Act (FDCPA). Should you have any complaints about how they are handling the debt, you can contact the Consumer Financial Protection Bureau.

Also, check out our in-depth article on how to settle your debts with a debt collector.

How to Settle Your Debt with the Original Creditor

Before picking up the phone and asking to pay off your debt with a lesser amount out of good faith, have a strategic plan in place. Don’t be afraid to jot down some notes or talking points to have on hand. Ready for a strong negotiation plan? Let’s get started.

Know Your Financial Ability

If you’ve defaulted on your debt payments, chances are you’re having trouble with money. When negotiating with an original creditor, it’s important to know exactly what you can offer in advance.

For example, if the debt amount is $1,000 and you have $500 in hand with which to pay it, then it makes sense for you to make contact with that goal in mind.

It’s not a good idea to make any promises you know you can’t keep. Plus, a creditor is more likely to accept a lump sum payment over installments because it’s guaranteed cash for them. So it’s important to go into negotiations with your final number in mind and make sure it’s one you can actually hand over.

Exactly what percentage of your debt is a creditor willing to settle for? The answer really depends on each individual creditor. But one factor that is a major influencer is time. If a debt is newer, say 120 days old, the creditor will most likely want closer to the amount owed.

If a debt is older, such as 9 months old, the creditor will most likely accept a lower amount to settle the matter and get it off their books. Because of this fact, it’s helpful to do a little homework to determine what the creditor’s situation may be before attempting to settle the debt.

Handling Negotiations

Everyone knows it is best not to offer all you have to the creditor at the outset of negotiations because whatever amount is offered, there will no doubt be a counter-offer. This begins the process of negotiation. The process ends when an agreed-to amount is set.

While most creditors want a lump-sum payment over installments it is possible in some cases to establish an installment agreement. This is helpful in stopping the collection calls and keeps the creditor from initiating court action.

However, it’s also important to only agree to a payment plan that you can afford. Usually, if an installment agreement is established and you miss a payment, the full amount of the original debt (less any payments) will again become due. Remember, the creditor already has the experience of your failure to pay, and now they want to see success.

Still, it’s important to protect yourself. If the original debt was agreed to be settled for a lesser amount, be sure to get an agreement in writing from the creditor. This is usually done prior to the exchange when you actually pay the debt.

See also: The 623 Dispute Method – Disputing with the Original Creditor

Highlights

To recap, the main action items for debtors who wish to settle their debt with the original creditor are:

  • Know your scope of your financial ability to repay
  • Make contact with the original creditor
  • Have money ready to make a lump sum payment
  • Negotiate with clarity
  • Fulfill all promises to the creditor
  • Get everything in writing BEFORE sending money

How does settled debt affect your credit?

Once you’ve settled your debt with the original creditor, your credit score will likely take a hit because the debt will be listed as “settled.” It’s still better than being defaulted or charged-off, but it’s something that future lenders can see. And it could raise a red flag when considering your application for credit.

To avoid this scenario, use your credit report listing as part of the negotiation process, especially if you’re offering a large one-time payment.

As part of your agreement to pay, you can request the creditor to report the debt as “Paid As Agreed.” Even if you don’t end up successfully getting that listing, it’s worth a shot, and could even be used as further leverage during the negotiation process.

How else can you get help settling your debt?

If you’re not confident in your ability to handle the process and negotiate the debt settlement successfully on your own, you can hire an outside firm to do it for you. In general, it is best to utilize a debt settlement service with extensive experience in negotiations.

Check Out Our Top Picks:

Best Debt Settlement Companies of 2021

Credit counselors can help, as can professional settlement companies or even lawyers. The idea is to settle the debt for as little as possible so as to avoid court action and the negative effects the information will have on your credit report and credit score.

Source: crediful.com

Posted in: Debt, Frugal Living Tagged: All, Credit, credit card, Credit Report, credit score, Debt, Fees, Financial Wize, FinancialWize, How To, Loans, Main, money

Archives

  • January 2023
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • October 2020

Categories

  • Account Management
  • Apartment Communities
  • Apartment Decorating
  • Apartment Hunting
  • Apartment Life
  • Apartment Safety
  • Auto
  • Auto Insurance
  • Auto Loans
  • Bank Accounts
  • Banking
  • Borrowing Money
  • Breaking News
  • Budgeting
  • Building Credit
  • Building Wealth
  • Business
  • Car Insurance
  • Car Loans
  • Careers
  • Cash Back
  • Celebrity Homes
  • Checking Account
  • Cleaning And Maintenance
  • College
  • Commercial Real Estate
  • Credit 101
  • Credit Card Guide
  • Credit Card News
  • Credit Cards
  • Credit Repair
  • Debt
  • DIY
  • Early Career
  • Education
  • Estate Planning
  • Extra Income
  • Family Finance
  • FHA Loans
  • Financial Advisor
  • Financial Clarity
  • Financial Freedom
  • Financial Planning
  • Financing A Home
  • Find An Apartment
  • Finishing Your Degree
  • First Time Home Buyers
  • Fix And Flip
  • Flood Insurance
  • Food Budgets
  • Frugal Living
  • Growing Wealth
  • Health Insurance
  • Home
  • Home Buying
  • Home Buying Tips
  • Home Decor
  • Home Design
  • Home Improvement
  • Home Loans
  • Home Loans Guide
  • Home Ownership
  • Home Repair
  • House Architecture
  • Identity Theft
  • Insurance
  • Investing
  • Investment Properties
  • Liefstyle
  • Life Hacks
  • Life Insurance
  • Loans
  • Luxury Homes
  • Making Money
  • Managing Debts
  • Market News
  • Minimalist LIfestyle
  • Money
  • Money Basics
  • Money Etiquette
  • Money Management
  • Money Tips
  • Mortgage
  • Mortgage News
  • Mortgage Rates
  • Mortgage Refinance
  • Mortgage Tips
  • Moving Guide
  • Paying Off Debts
  • Personal Finance
  • Personal Loans
  • Pets
  • Podcasts
  • Quick Cash
  • Real Estate
  • Real Estate News
  • Refinance
  • Renting
  • Retirement
  • Roommate Tips
  • Saving And Spending
  • Saving Energy
  • Savings Account
  • Side Gigs
  • Small Business
  • Spending Money Wisely
  • Starting A Business
  • Starting A Family
  • Student Finances
  • Student Loans
  • Taxes
  • Travel
  • Uncategorized
  • Unemployment
  • Unique Homes
  • VA Loans
  • Work From Home
hanovermortgages.com
Home | Contact | Site Map

Copyright © 2023 Hanover Mortgages.

Omega WordPress Theme by ThemeHall