Wednesday, February 3, 2010

Why Creditors Settle For Less

I bet you have heard that creditors will settle for less than the owed balance and your probably wondering well why don't I just settle my credit cards for less than I owe?  It's really not as simple as that. Creditors don't settle on accounts that are current. So before they will settle you have to be behind on payments.

So Get Behind And Pay Less

Are you considering missing a few payments so you can pay less? Well that's a horrible idea. First off let's remember that you made a promise to make that payment and you should keep your word. No, not a good enough reason, well if you get behind your credit will be damaged. (Read more about your Credit Report) Along with your credit being damaged you will also receive calls at home and even work from creditors trying to get their money. Now all of this doesn't sound so great anymore  right?

Why Do They Settle Then

Well most of the time they settle because they know you are unable to pay your balance and therefore if they want to get any money they will simply settle. What typically happens is people don't pay for several months thus the original creditor attaches fees. Once they realize that they are not going to get paid they sell the debt to a collection agency for pennies on the dollar. The amount that they sell it at will depend on several factors that are all based on the likelihood of getting paid. The collections agency will often settle for half the original balance because they purchased the debt f or less than half themselves. This is how collection agencies make their money. They will always try to get the full balance.

Should I Pay The Collections Agency The Full Balance

Well once the account has gone to collections you can pay less than owed and it will show up on your credit report as settled. I really don't see an advantage at this point to paying in full, the damage has been done and over time it will drop. Also the outrageous fees are tacked on so if you pay the entire balance you are paying those ridicules fees. Reed more about the downsides to credit cards: Are Credit Cards Really "The Devil".

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