Debt Settlement And Negotiation Is Bad For Your Credit!

I'm not a big TV watcher but sometimes when I do, I see ads for debt settlement and debt negotiation services.  They sound so nice and the actors pretend that their life after signing up is just so wonderful, like it solved all of their problems. Its a crock!  If they were honest about it, they would have a disclaimer that you could hear at a normal speed of talking where they told you who really benefits with debt settlement.

If you've read much of my blog, you have most likely read that you don't owe collectors a dime and you shouldn't pay them or settle with them. I feel the same way about charged off accounts with original creditors. You don't owe them squat.  Of course, that's not what you're going to read on most websites and blogs. No, they just keep spitting out the same garbage that the bureaus and the FTC, and the creditors and collectors want you to believe. 

But, you have to think about it. Why would they tell you that a charged off account still has to be paid? Why would a collector who you've never agreed to do business with tell you that regardless if its been charged off and now they own it, that you have to pay? I know you have got to sort of have the answer in your head as you read this - its so easy!  Its because they know if they get you to pay, they are going to make butt loads of money off of you and everyone else they convince that they need to pay.  What's that saying? Follow the money!

So why is debt settlement so bad for your credit?  Let me explain a little about your credit report and scores.  When you have a charge off, it can really cost you some points. But, as time goes on, it has less and less effect on your score.  In fact, at 2 years, it really isn't affecting your score at all. At least its not if they are reporting it properly. What I mean by that is, it should show what your high credit is and your balance should be $0 and your past due should be $0.  Anything other than that is wrong and even at 2 years old, it will be affecting your credit and your score negatively.  

This is when most people see that charge off and they think if they do the fake "honorable" thing and pay it off, it will help their score. NOPE! It will hurt your score.  What you should do, is tell the original creditor that you are not happy that they are intentionally damaging your credit score by knowingly reporting erroneous information. They charged this alleged account off. Their books say $0 past due now and $0 balance. So why on earth are they reporting anything other than $0? I admit that there's a lot of incompetent people working for these folks, but it is intentional. They want to screw you over because you stopped paying and they didn't get to swindle you for the full amount they were hoping for. Its retaliation!

So, they may come back with a phony verification but offer you a sweet deal to close it out. If you do that, what will happen to your credit is a new negative report that now will take another 2 years to have no affect and another 7 years before it will "fall off" of your credit report. Oh, and your credit report will also say that you settled! Is that helping you? Nah, but they made more money off you. They also took tax credits when they charged off, so now they have just committed tax fraud.  And when they charged off, they got a secret insurance payment that paid it off, so they also just committed insurance fraud. So tell me again how you benefited?  You have a fresh negative and 7 more years of negative crap on your credit and paid for something that had you continued to fight about, you never would have paid and you probably would have gotten it off your credit.

Let's talk about 3rd party debt collectors. They notify you that they are now collecting on behalf of an old credit card or medical debt that you failed to pay. But oh, lucky you. They're going to offer you an awesome deal where they're going to knock off half of the balance you owe them. Stop! You don't owe them. When did you contract with them?  Were they mentioned on the contract with the original creditor? NO, NO, NO they weren't! 

What you should do is demand validation from them. I think that probably 90-95% of the time, when they bought the portfolio of bad debt from the original creditor or some other junk debt buyer, they were missing a lot of the supporting documentation. I say this because 97% of collection lawsuits end up with the collector winning a default judgment. The defendant (think, overwhelmed or not notified consumer) doesn't fight it or respond. So, if they can count on that many default judgments, why would they care if they got full documentation to support the bad debts they buy?

When you demand validation, more than 1/3 of them will hit the road. They may sell it to the next junk debt buyer to try to recoup some of the money they spend, but each time they resell it, you have a higher success rate of getting rid of them.  But let's get back to debt settlement. Why would you settle with someone you don't owe, even at 1/2 the amount, when they bought it for probably no more than 20 cents on the dollar? That means they are also making money off of you when they never lent you a dime. And they probably can't prove you owe them anything.

But here's the bad part. They will now report that you have a paid collection.  A collection is worse than a charge off. It is bad. Always bad. And paying them is more fresh bad. No collector should ever be on any one's credit report, but if you pay them, you will have an even harder time getting it off because they have no incentive to delete and they will claim because you paid them, you contracted with them.

Now debt negotiation is a little different. This is where you hire a company to negotiate a settlement for you.  Why is this bad? Well, for all of the above reasons, but also, now you are paying another company money. They won't make payments on your behalf right away. No, they hold on to the money.  Oh wait, that's not correct. They will take a portion of your payment and keep it as part of their fee, and then hold on to the rest until you build up enough to make a settlement offer to 1 or a few creditors and or collectors. So now, you may have just been struggling to pay the credit card bills, but were never late, and this company stopped paying them, when you thought they were going to be managing it for you. Oh boy are you getting screwed!

Debt negotiation firms, (if they don't take your money and run), they hold on to your money so long without making payments that you will end up with charge offs, having original creditor debts now go to collectors, have your car repoed, even get you into a situation where you get sued! Wow, they are really helping consumers, aren't they?

Now there's also the consumer counseling companies. They do debt settlement also but its a little different. What they do is negotiate to lower or freeze the interest rates. But, the balance of the debt stays the same, plus you have a monthly fee for them negotiating with the credit card companies. You don't get any cut in the balance at all.  Its kind of like a Ch. 13 bankruptcy and they will many times notate on your credit report that its included in a counseling plan.  The only thing I can commend these types of settlement companies on is the fact that they actually will be making the payment to the creditors every month. That's because they don't have to save up a large amount to negotiate a balance settlement. So as long as you make that payment every month to them (which of course includes their service fee), they'll pay the creditors.

Okay, so who benefits? Well, many times these companies claim to be non-profit. That doesn't mean anything for you. It means they are exempt from taxation, but it doesn't mean it costs you less. And who donates to these companies, gives them grants, invests in them, keeps them up and running?  Many times its the credit card companies! I can tell you for sure the credit card companies are behind most of the credit counseling companies. Its another nice tax credit.  Did you see that one coming?  Its a stinking scam! So, now the negotiation company benefits, the original creditor benefits, the collector benefits, but how on earth do you benefit?

Every month they don't pay because they're building up the payoff fund, your credit report gets more late notations and your score drops, and you get charge offs, and you get new collection activity being reported on your credit. You aren't benefiting at all! You are getting spanked!

What annoys me also is, they have the nerve to claim they are helping you repair or restore your credit. Its such BS! They are no better than dirty 3rd party debt collectors. They are lying thieves!  None of them are out to help you. They are all vultures finding different ways to snipe your money from you. They don't care what kind of hardship it causes you. They don't care that it jacks up your credit. All they care about is the money. And its a lot of money. These debt settlement and debt negotiation companies make big money, whether they are for profit, not for profit, or non-profit.

If you want to fix your credit, don't think for one second that paying one of these companies is going to help you. They are not, and that's a fact! If you want to fix your credit, you're going to have to learn how to fight back. Learn to write validation letters. Learn how to read your credit report. Learn how to know if what they send back as validation or verification is accurate or actually validation or verification. You have to learn how to respond to them. If you want to be successful on your own, you will need to learn some laws and not just say the same thing that letters you find online say. You have to understand the laws. You have to know how and when  to use them, which ones to use, which case law to throw back at them, what to say to defend yourself and make them pound sand!

I try to teach you here how to stand up for yourself, how to fight to get your credit score back up and your credit reports looking pretty. But, it takes commitment. It takes time. It takes persistence and not everything always comes off.  You probably won't have as much success as someone who does it professionally, but you can see fantastic results if you keep at it and if you use a lot of what I share with you on this blog.  I don't think you'll find anyone else who has been in the business as long as I have been, willing to share as much truth and strategies and laws as I do here.  What I share has helped me be successful for almost 3 decades. I want you to be successful too!

So, I congratulate you on making the decision to fight to restore your credit and improve your credit. You can do it.  But, if you find you just don't want to do it on your own, I would love to help. Use the phone number or the email address up at the top right hand side of this page to contact me.  Let's get started on your new clean credit report so you can get those better insurance rates, you can get that job, you can qualify for that car or home purchase. Let's get you going to finally get back your life!

How To Write A Validation Letter

I get a LOT of emails asking how to write a validation letter so I'm going to try to explain it again here.  Validation letters are NOT sent to Original Creditors.  Validation letters are NOT sent to Credit Bureaus.   They are ONLY sent to 3rd Party Collectors.

When you get a letter from a collection company, the first time you receive one from that company, they should be very clear that you have a right to dispute their claim within 30 days.  This does not mean that they won't be putting it on your credit report or that they haven't already put it on your credit report.  But it does mean that they will have to immediately stop collection activity when they receive your dispute or what we call a Validation letter.

Sometimes you never get that first letter or maybe you did and you ignored it, but you have a copy of your  credit report and you see a collection account on there.  You will want to dispute this with a Validation letter as well.  Even though you may not have disputed within the first 30 days of being notified that this collection company is hot on your trail, or you never knew about it until you saw your credit report, once they get the Validation letter from you, they must stop all collection activity.

A Validation letter is demanding proof that you owe them something.  You have the right to challenge their claim and make them stop collection activity pursuant to the FDCPA (Fair Debt Collection Practices Act).  Collection activity can be phone calls where they are pressuring you to pay something, another "bill" saying to pay, and even verifying the alleged debt or updating the alleged debt on your credit report.  They must stop ALL collection activity until they prove the alleged debt is yours.  The only things they are allowed to do at this time are to 1. Prove the alleged debt is yours; 2. Mark the alleged account as "In Dispute" on your credit report; or 3. Send you a letter stating they are closing the file and removing it from your credit report - or similar language to that effect.

A Validation letter should always be sent Certified Mail and preferably with a Return Receipt.  These are some of the things that you will want to keep for your "paper trail" if you end up in court against these suckers.  So, always keep a copy of each letter sent and the certified receipt showing they got your letter. Also, keep every letter they send you. You will be able to find violations they commit and also whether or not they responded and if they sent all the information you demanded in your Validation letter.

Validation letters can be short and to the point, or long and full of laws, or anywhere in between.  The best Validation letters are the ones you write yourself. The worst to use are the ones you find all over the internet or in some book where you said everything they did, word for word.  You want to make the letter your own. Put it in your own words. If you're pissed off and feel like letting them know, well then make sure your letter gets that across to them. I believe its absolutely fine to not be nice in a letter to any collection company. They are ruthless, rude, law breaking  scum, so why would you have to be nice to them?  Write from your heart while you make sure you demand they try to prove their claims.  If that's not you, if you just would  rather be nice or plain matter of fact, that's perfectly okay too.

The letter to them will start off with a Dear Sirs, or To whom it may concern, or some sort of generic salutation. Then you tell them you either received their letter claiming you owe them something or you have a copy of your credit report and saw that they are furnishing information on it that they think you owe them something.  Then you tell them you don't believe you owe them anything and you are disputing their claim and you demand that they stop all collection activity pursuant to the FDCPA.  You don't have to put that its pursuant to anything if you don't want, but whether or not you say that, it is pursuant to the FDCPA and they know it.

Make sure you reference the alleged account number that they assigned to the alleged debt. Now you can tell them what you want them to provide to you.  You definitely want a copy of the alleged contract that shows you agreed to do business with them.  You want a copy of the contract between you and the alleged original creditor. You want a full accounting - meaning, how did they determine how much they claim you owe them.  They usually have added extra charges for interest and collection fees so they need to explain exactly how they got to the amount they are telling you to pay them.

They also need to provide proof that they have a right to collect the alleged debt.  This means they will need to show the contract between them and the original creditor, or whoever they got the alleged account from, and the full chain of assignment. This means, if they are not the first collector claiming you owe this alleged debt, they need to show every single collection company that had it from the original creditor, through every 3rd party scum bag, to them.  Now if you are in a state that requires collection companies to be licensed and/or bonded, they need to provide copies of those items as well.

Another important item that they should be able to provide to you, is the date of the last payment and proof that the alleged account is not outside the Statute of Limitations. If the alleged original account is Time-barred, this is a fantastic way to get rid of them fast.  Some companies don't care and will continue to try to collect and may even sue you on Time-barred debts.  As long as you make no payment to them, make no payment arrangement with them and never admit you owe the alleged debt, it will stay time-barred.  You have to be very, very careful here. In some states, just acknowledging that you ever owed the alleged debt is enough to start the Statute of Limitations clock all over again, so DON'T DO IT! Don't admit Anything - Ever! Don't make a payment to these fools - Ever! Don't agree to a payment plan - Ever!

The next thing I believe you should tell them, and I think its very important to say it in writing, is that under no circumstances do you authorize or give them consent to furnish any information to your credit reports nor to take any action that would result in an inquiry on your credit report from their company. You should tell them this whether they are on your credit report or not.  In order for a company to inquire or furnish information on your credit report, you must give your authorization for them to do so.  Read my previous post, just before this one, so you understand what it takes for them to be able to have anything to do with your credit report.

Now, if they are already furnishing information to your credit report, also demand that they provide a copy of your consent and/or authorization that allows them to furnish or inquire on your credit report. Remind them that without this proof, they must remove all traces of their slander from your credit reports.

You really don't need much more than this in your validation letters. If your want to, you can use case law or the actual laws that give you the right to demand everything you have told them to provide to you, just to give your letter even more weight. You can use something you find on the internet and request the same things those letters say, but again, put it in your own words.  Don't use a form letter and don't copy word for word from those letters. They just don't have as good of an effect or result  as your own letter will have.

Okay, now you've come to the end of your letter. Here is something super important. NEVER, NEVER, NEVER sign your name to the letter.  You may type it or print it, or stamp it, but Don't Sign in YOUR Handwriting!  Also, NEVER, NEVER, NEVER give them your social security number. And nowhere in your letter at all, NEVER, NEVER, EVER admit that you owe them diddly nor that the alleged original account belongs to you.  

You don't ever want to acknowledge anything other than you received their correspondence and/or you see that they are reporting on your credit reports. They are the ones that should be sending you proof.  You have NO obligation to send them copies of ANYTHING or to disclose anything to them. No copies of old bills, no social security number, no utility bills, no driver's license, no birth date, no whatever they claim you need to send them as proof of anything.  You are not the party needing to prove something - THEY ARE! 

If they are requesting you send them something, it means that they don't have what it takes to even come close to resembling validation. The minute they start asking for you to provide any type of information is time for you to tell them you know they obviously are fraudsters and have no proof of any alleged debt and they need to go pound sand.

So, this is how you write a Validation letter. Hopefully you will craft an excellent one that successfully gets them out of your life and off your credit reports. I'd like to tell you that you will probably be a lot more successful if you can respond to their initial letter within the 30 period. But if you've missed it or never received that "Dunning" notice, don't worry. You still retain your rights, you just need to exercise them and be consistent. Don't accept their claim of validation, don't accept anything other than they are ceasing the game with you and always respond until they give up and go away.

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