Debt Collectors Send Offers to Settle in the Mail.
Hi Michael, I’m wondering if you could help/advise me on what I should do if my credit card (Barclay), who has reached out to a debt collector (Capital Management Services, LP) regarding a 50% settlement of my current bill. I’m tempted to take the offer, which would take the roughly $2800.00 bill down to about $1400.00, however there are a few variables.
For starters I find myself thinking this sort of thing to be very hasty, the deadline for settlement is next week. I’m wondering if this is too good of a deal to pass up but if I take it, I won’t have money when I'll need it in the coming months.
Naturally, I’m worried on the effects to my credit score, but since I’m sure it’s not too good, from what I’ve read thus far, the next seven years are to be doomed. It’s all so confusing, and some how the mentioning of an IRS document, 1099c is also present, which is only heightening my anxiety.
Several questions here, most regarding effects on credit report. 1. Is settling with a credit card company a long term benefit? 2. What happens if I decide to not take the offer from the settlement company? 3. Would my credit repot be better off if I settled/ did not settle? 4. How exactly does the IRS form 1099 C play a role in this sort of disaster?
Offers to settle outstanding credit card debts with debt collectors are common. Capital Management Services is letting you know they are authorized by Barclay bank to accept half of what you owe on your account. But if they make the first offer, and at such a steep discount, are you leaving money on the table by accepting the deal?
Yes, you are likely leaving money on the table. At least, in this situation with Barclay.
There are other creditors who are less likely to offer to settle for less than 50%. My current realistic targets with Barclay bank are 40%, and occasionally lower when the individual hardship scenario suggest targeting a better deal in your negotiations. Without knowing all of the details of your hardship, and reasons for not paying for as long as you haven’t, I would target 40%.
Making a counter offer to settle with Capital Management Services.
You can use the information in the offer letter Capital Management sent to you as a starting point, and even time your efforts accordingly.
You know they will accept 50%, but they moved with the first offer. It is common to have an offer, counter offer, a counter, followed by an agreement, in negotiations of all types (not just with credit card bills and debt collectors). You can call Capital Management and make a count of, say 30%, making sure to leave them with a sincere impression that is all the money in the world to you, or that you are having to rely on outside resources to pull the money together. They may counter right then with somewhere in the middle, or suggest that they are unable to go any lower than the 50%.
You do not have to negotiate an agreement in the first call. Nothing wrong with shooting for that, but it is also okay to just accomplish 2 goals:
1. Relay a sincere hardship.
2. Show a willingness to pay something, but only if it is within your means.
If you were to call the debt collector today, but not reach an agreement you will take advantage of, just politely end the call. Use the date the offer expires they have in their initial offer letter as timeline to call them back and try again.
Debt collectors do deadlines.
Let’s face it, if there were no time limits or deadlines in life, how much stuff would get done? Debt collection agencies are often under some pressures to get stuff done with the files sent to them for collection. Barclay did not send Capital Management the account to collect on forever. The limits for assignment collection files like yours can be as little as a couple months.
Whether the date on your offer letter is timed for when the collector might lose your account or not, can definitely affect your ability to settle for the most savings, and the timing of your efforts.
Call them the day before the offer expires. Be ready to make a cull lump sum payment, or the first of several payments if you are going for a term settlement. Let them know you are calling back after having called recently and been unable to take them up on the mailed offer. You had 30% available when you called back and that was it, but you were able to pull together more, and make another offer of a round dollar amount consistent with your next settlement target of, say 40%, but that is flat out all you could come up with in all of your efforts.
If they do not take the offer, ask them how long they will have the account for, and that you will see what you can do to get more money together, but you already knocked on every door…. Many assignment collectors like this will have no problem telling you when they will lose the account. If Capital will have the account past the date on the settlement offer letter they sent you, use that date to time you last counter offer to them.
Check out this video about timing your settlement offers with debt collectors.
Barclay Bank does work with a network of attorneys to collect debts. They do sue as part of the collection effort. You may want to ask Capital Management how long they will have the account for in the first call you have with them. You can then assess whether it is worth the extra money you may pay when settling with them, to eliminate the risk you are sued, which ads costs to settlements, or can prevent them.
The benefits of settling your credit card debt with a collector.
Most banks do not send accounts like yours out to an assignment debt collector until you have missed many payments (3 to 6, though there are some exceptions like AMEX). That means the damage to your credit reports is done. But there are credit reporting, and other benefits, to taking advantage of settlement offers, and negotiating better ones. Here are some:
1. Your credit report is still showing a balance due, whether to the bank itself, or to a new owner of the debt. Settling should bring the amount owed to zero. That will help your debt to income calculations, and these days is a condition of certain types of financing, like many home loan, or refinance options.
2. You eliminate the risk of being sued, which can lead to additional credit damage, and expose you to extra ordinary collections only judgment creditors enjoy (that you will not).
3. The savings being offered to you in the letter a debt collector sends, or that you can negotiate lower right now, may be a better deal than you can put together with the next debt collector.
My experiences working with people who settle debts over many years suggest that settling will provide more benefits than not, if you have credit and financing goals set for the next few years; are not passed your states statute of limitations to be sued for collection; and are not already 1 to 2 years from the collections and negative items dropping from your credit reports anyway.
The tax implications when settling debt are very real. Not everyone will end up owing any money to the IRS, but anyone with more assets than liabilities needs to weigh the potential taxes into their budget. You can read through this critical report for more details on the tax issue: https://consumerrecoverynetwork.com/debt-forgiveness-taxes-settled-credit-card/.
You can post any additional information or questions in the comments below for more feedback.
Anyone considering a settlement offer they received from a debt collector, or with similar questions or concerns, is welcome to post in the comments below for feedback.