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Payoff Bills

If you have a past due bill and are thinking of paying it off or making payment arrangements with your creditor or with a debt consolidator, STOP.  Don't do it. It could be the worst credit decision you've ever made. Here's why:

The Bad News: If you owe money, chances are it appears on one or more of your credit reports. If it has already gone to collections or if it has been “charged off” on your record, then that alone can keep you from qualifying for low interest rate loans, credit cards, etc. Payment plans will not help your credit, either. The negative item will stay on your record until it's paid. In fact, it's still reported as negative even after you pay.

The Good News: There is a simple and effective way to get these items off your credit report-permanently. And here's the strange thing: the more money you owe, and the longer it's been since you've made a payment, the more likely you are to have it removed from your credit report.

I know that sounds crazy , but it's true. If your debt is over six months old and over $200, your creditor probably thinks there is very little chance you will ever pay and they will probably make a settlement with you (less than $200 or six months and they are not as likely to settle).

What that means is that you won't have to pay the entire amount of the debt. Often, you can negotiate to pay just 50 cents on the dollar, or even less. If you owed $850, you might be able to settle for just $425! All you have to do is call your creditor and tell them that you would like to settle your account, but there's no way you can pay the full amount.

The Bankruptcy Bluff
  Tell them you've got other debts and if you can't settle, you're going to have to file bankruptcy. If you tell them that you've already met with a bankruptcy attorney, they will usually believe you. Then, if they don't settle, they risk losing the entire amount of the debt. Although it's just a bluff, this strategy works wonders with creditors and collection agencies. It won't work with every creditor, but it will work with most of them.

Try to find out the name of the district court where bankruptcy cases are filed in your area and use the name of the court and the title of the forms they require. This will make your bluff more believable. If you can't pay off the reduced sum right away, you're better off waiting until you can save at least 50% of the debt before making your offer. If you don't have the money, they will try to talk you into a payment plan. Usually these plans don't incorporate a discount on the amount due and take a long time.
Whatever you do, don't tell your creditors that you need the item cleared up because you need to buy a car or get a mortgage. This will only make them think that you are motivated enough to pay the entire bill. Just tell them you're trying to clean up your credit file.
The Most Important Thing   However you decide to pay, make sure that payment is conditioned on removal or update (to “paid as agreed, zero balance”) of the negative item on your credit file with all three bureaus. They will probably agree to this if you insist that you won't pay unless they do this. If they don't, then your report will show “Paid Charge Off,” which is not much better than an unpaid charge off. Write them a letter that says:
    As agreed, enclosed is a check for $425 as payment in full for account number ____________. I believe this credit item is being reported incorrectly on my credit file, so this payment is conditioned on removing this item from all three credit bureau files, or updating the item to show “PAID AS AGREED, ZERO BALANCE.”

    Specifically, I do not want the item to show as a paid charge off or paid collection. It must have no negative aspect associated with it. If you are unable to do this, then please send the check back to   (Your Name and Address)  . There is a restrictive endorsement on this check and its deposit forms a binding agreement. Please call if you have any questions regarding this matter.

The Special Endorsement
 Send this letter by registered mail, return receipt requested, at your post office. It's a couple of bucks for this service, but you will have written proof that your letter was received and this can prove invaluable. Then, write on the top of the back of the check, in very small, but legible print, the following:
    “Endorsement or deposit of this check signifies payment in full of account number ______ from the beginning of time to this date. Further, the recipient of this check agrees that this account was erroneously reported to the credit bureaus and will take whatever actions necessary to permanently remove the corresponding item from all three credit bureau files, or update these files to show “Paid as Agreed, Zero Balance” and not simply “Paid Collection.”

This endorsement must be on the back of the check, starting at the very top part of the area where you usually would make the endorsement. If they deposit this check and still don't remove it from your credit files (within 30 days), then you will have written proof you can use to force them to comply, or to convince the bureaus of the validity of your claim. Consult with an attorney for details and applicability of this strategy.

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