I have made some bad credit choices in my lifetime. At one point I decided that I needed to get it cleaned up. I wasn't looking at jail or anything, but I thought I may want to buy a house one day, or a car, or a sleep number bed. I began by writing letters to all creditors that held my debts. I have pretty good credit today. Not quite 700, but almost. I began the following process about 6 years ago, and have NO debt today. The biggest challenge is not paying off debt, but repairing credit, and there are few shortcuts. Here is how I did it.
I wrote one letter, and changed the name and the amount of the debt owed accordingly. I got all of that info from my credit report. To each creditor I let it be known that I was "interested in paying the debt IN FULL and not interested in making payments. Would they consider a settlement offer that would help facilitate a PAID IN FULL balance"? Also very important is the following line: "Please correspond by mail only. Do not contact me by phone." I provided a current address and phone number so that I could receive any settlement offer. The reason that you provide a phone number anyway is because according to the law, they cannot contact you by phone if you request that they only contact you by mail. If they do, then the debt is null and void.
Make 2 copies of each letter, staple the receipt for the certified mail to your copy along with the date mailed. SAVE EVERYTHING in a folder. SAVE EVERYTHING, You are building a paper trail, it cannot be over stressed.
The reason for this step is not to weasel out of paying a just debt, but to reach an amicable agreement with the collectors. Collection agencies PURCHASE your debt from the original creditor for a small amount of your original debt. Your creditor has already written you off by the time the collector gets it. The idea, like any good business deal is to arrive at a number that everyone can be happy with. If I buy your $1000 debt for $300 bucks, I will absolutely settle that debt with you for $500. The original creditor is happy because he got $300 and did not have to bear the expense in time or money to get a judgment against you, and then legally go about securing that debt. The collctor is happy because he made $200 bucks, and you are happy because you had 50% knocked off of your debt. There was something in it for everyone. This is highly philosophical, and you should not expect to pay back all of your debts at a 50% rate because you have no idea what the collector paid your creditor for that debt. If a collector will not work with you, he may not have the wiggle room.
The next step was to wait for the offers. I only saw an 18% reduction of actual debt when the first round of letters came back, and I stapled each offer to the appropriate stack. I had 2 debts that were problematic:
The first one was an old hospital bill that I could not afford to pay. I received the services, and I was happy with the services, I just could not afford the $1200. The debt was sold to a collector who charged me a whopping 36% interest rate, and when I sent them a payment they mailed the check back to me. They wanted payment in full. I could not hope to have $3000 to pay them in full at any given time. It is only half true that if they refuse to take payments that absolves you from that debt. I sent them another letter demanding a FAIR settlement offer. (Since the original debt was $1200, and they are a third party, they were only entitled to a STATUTORY RATE OF INTEREST on the ORIGINAL BALANCE. In my state that rate is 6% annual and it is different in every state. Their "offer" was not fair, (or legal) and I told them so.) I ended up writing them a 3rd letter informing them that they would receive nothing until I had a day in court. They waited 18 months to get me in a courtroom, and by then the balance owed was $4200. I presented all of the paperwork to their legal representative, (there was no judge at the hearing) explained to them that I understood that their interest rate was USURY. Their rep made me an offer at the statutory rate of interest for the whole time that had elapsed since hospitalization, but compounding monthly. I politely declined. When it finally got before a judge, I ended up paying $600. HALF of the original debt of $1200, NO INTEREST, and the judge ripped the legal rep a new one right in front of everyone. On the surface, this seems good. But it allowed the collector to put a JUDGEMENT on my credit report that made it very difficult to get NEW credit which is helpful in raising your score.
The other problem I ran into was from a 10 year old phone bill in the amount of $900. The phone company did not sell this debt, and that gave them the ability to repost this debt to my credit report year after year. They actually reposted it after 5 years, and again after 3 years. This is actually legal. They say it falls off after 7 years, but that isn't true. JUDGEMENTS fall off after 7 years. An original, non 3rd party debt can continue to alert the credit bureaus that your debt is not paid long after that. They do have a contract after all, and it was not in their best interest to settle for less. They were not coming after me, they were just being a nuisance. It wasn't that I didn't owe it. I owed it and I knew it. The problem was that a roommate used an AOL dial up number to a long distance city and stayed online for hours and hours. Before I got so stretched out, I asked the phone company to help me out by restricting long distance calls or something, but they refused. I didn't think it was fair... You get the idea. Ultimately I made the choice to pay them off.
All told, my efforts saved me about 29% of all of my original debts. Some of the debts simply disappeared with the first letter. Some settled for less, some for a lot less, others didn't settle at all, a couple played hardball. I paid off interest bearing debt first, then started with the small, and moved up to the larger debts. Paying the debt off only took (mostly) about 6 months once I wrote those first letters.
Repairing credit takes a LONG time. Just because your debt is paid does not mean that your credit is repaired, but it will take a lot longer to repair if you don't pay, make all of your payments on time, try not to get any judgements, DON'T CANCEL CREDIT CARDS. NEVER NEVER NEVER pay 30 days late!
