How much of this debt do I need to pay?

March 16, 2018 1:40 PM

I am trying to get my debt snowball rolling, which means getting a handle on how much I really owe.

On my credit report, I have four different debts from one collection agency ranging from $900 to $50. They are old, about 4 years old (racked up from getting west nile virus and being uninsured). My question is this: The collections agency says I owe more than what I owe on my credit report (pulled from Creditkarma.com). For example, one of the debts is reported at $51 on my credit report, but the collections agency says it's at $286. I know they're trying to maximize their profit off of my debt but I don't want to overpay due to my own ignorance. I am aware that I can negotiate the settlement down, and to get that settlement in writing. Can I tell them I know the debt is at $51 and offer to pay that? What would be the smartest move? I am in Illinois and am mostly up on the debt collection laws here.

Any help would be great. I am a Dave Ramsey newbie and looking for all the not-too-harsh advice I can get.

posted by eggs to Work & Money (8 answers total)

Best answer: First, of course, I am not your financial advisor.

The difference you're seeing is likely the difference between the actual original debt owed (the $51) and the debt plus interest/fees/FU money charged by the collector ($286). That latter number will rapidly escalate, so no matter what you do, do it quickly - get in touch with the collections agency ASAP, acknowledge the original debt, and offer to meet somewhere above $51 but below $286 (start at like $150 maybe). You gotta give them something - they won't go for $51, because they won't make any money off the debt at that level.

That initial contact with the collections agency is the hard part, but rest assured, the collections agency isn't judging you morally for having the debt. They don't care. They just want their money.

If you do this over the phone, make sure you take detailed notes of every conversation, including date/time of call, first and last name of who you spoke with, and the general arc of the conversation. It's a pain in the butt, but it's the only way to make sure you're covered. And yes, when you do arrive at a settlement amount, get it in writing, as well as getting a repayment schedule in writing.

You'll have to go through this process for each debt. I had a similar experience a few years back, and I found that if you are businesslike, friendly, and non-confrontational with the debt collector, they'll be more willing to work with you - they're used to threatening, getting into fights and being hardasses, but if you relieve them of the need to do that, they'll treat it like a "normal" business transaction.
posted by pdb at 2:24 PM on March 16, 2018 [3 favorites]

If you do this over the phone, make sure you take detailed notes of every conversation, including date/time of call, first and last name of who you spoke with, and the general arc of the conversation. It's a pain in the butt, but it's the only way to make sure you're covered. And yes, when you do arrive at a settlement amount, get it in writing, as well as getting a repayment schedule in writing.

pdb's advice is great, and this in particular is vital. Get absolutely everything in writing, and do not agree to anything without written confirmation. I spent a decade trying to crawl out from under crooked collection agencies that did *all kinds* of illegal stuff because I didn't get everything in writing, and it destroyed my credit rating, and I'm looking at another two to seven years of no mistakes before that's fixed. Make sure you know the law for collections in your jurisdiction; where I live it's illegal for them to contact you at your place of work, ask certain personal questions, or pressure you into certain kinds of payment plans. Know your rights.
posted by Fish Sauce at 3:02 PM on March 16, 2018

Best answer: they won't go for $51, because they won't make any money off the debt at that level.

Sure they will. If it's a debt collector, they probably, literally, paid $0.51 for the debt. $51 strikes me as a reasonable opening offer.

OP, this will be a question of personal preference, but if the debts are four years old, they will drop off your credit report in three. Further, the closer you get to the seven-year cutoff, the lower the payment they are likely to accept. Keep in mind that the majority of the harm to your credit score will not go away when you pay, though you will see a bit of improvement. So you may want to consider whether it's worth it to you to pay.

(If they bring suit, that will change the calculus considerably, but four years without suit suggests they may not be planning to.)
posted by praemunire at 3:20 PM on March 16, 2018 [2 favorites]

Response by poster: For what it's worth, the report on creditkarma shows me reduced balances, even though I haven't paid anything on any of the debts. (Yes I know how bad I am)

for example here is what it shows for the $51 debt:


"You've paid off 95% of your collection amount.
Balance $51
Highest Balance $286
Opened Feb 8, 2014 (4 yr, 1 mo)"

Me, being a newb, understands this as meaning the original debt from the west nile virus was $286 and this collection agency bought it for $51, but are still trying to get that full amount out of me. I know that the collectors really just want to get anything on these kinds of cold cases so maybe they'll go for a smaller amount? I want to get my finances in order so I can start to attack my student loan bills that will come due in a few years, which is why I'm considering paying off these relatively small debts. I also may need to take out small loans for graduate school and would like to have that possibility if I absolutely needed to (although I'm hellbent on not paying a dime for grad school)

I'm SO nervous about calling them because I'm scared I'll say the wrong thing and screw myself.
posted by eggs at 4:43 PM on March 16, 2018

Let them make the first offer. (That's essentially a universal rule in any negotiation.) Sometimes they will offer a fraction of the debt.
posted by wnissen at 4:59 PM on March 16, 2018 [1 favorite]

Get a copy of "Bad Paper" by Jake Halpern and read it. This will give you a clearer idea of who you are dealing with. My understanding is that 4 YO debt is pretty worthless and the people who are trying to collect from you bought it as part of a large spreadsheet of crappy old paper for pennies. If I was you I wouldn't bother paying them, or I would offer them 25% of the original debt, take it or leave it.
posted by Pembquist at 6:13 PM on March 16, 2018 [2 favorites]

the collections agency isn't judging you morally for having the debt. They don't care. They just want their money.

FYI—not my experience. A few years ago, I had a very rude man try to shame me into paying a debt that was not, in fact, mine. (I have a very common surname.)
posted by she's not there at 11:24 PM on March 16, 2018 [1 favorite]

FYI—not my experience. A few years ago, I had a very rude man try to shame me into paying a debt that was not, in fact, mine.

Yeah, they are professional assholes. Just keep in mind that a debt collection company, or anyone who works for a debt collection company, is pretty much a scumbag bottom-feeder trash fire whose moral judgment you should be as indifferent to as to Harvey Weinstein's.
posted by praemunire at 3:35 PM on March 17, 2018