A paid debt is one that is very much a part of your credit history, and as such it will remain on your credit report for many years. A negative account will drop after 7 years. If you paid off an account and closed it, that payment record will benefit your credit report for 10 years.

Once you have paid off a negative account, then that account should show the final payment and a zero balance. It should also be marked as paid. This is an important item to check, since many collection agencies fail to update your credit record when you pay off an account.

There is a way to negotiate removal of a negative item from your credit report. However, in order to negotiate, you must make sure that the ball is still in your court. If you owe on a defaulted debt and are in position to be able to pay it, then you have some leverage in determining the outcome of the situation. There are two key factors that you may be able to negotiate.

1. Payoff Amount: If you owe $1,000 to a debt collector, understand that they likely paid anywhere from $40 to $140 for that debt. Anything the collect in addition to that is a profit. You may be able to convince them to accept a smaller amount in exchange for your upfront, lump sum payment. You can save them the time and cost of continued collection attempts and pricey legal action. Just remember that you might be on the hook for additional income taxes if you negotiate more than a $600 reduction in the debt!
2. Removal of Negative Credit Reference: This is precisely what you are looking to accomplish when negotiating a payoff. Once you have completed the payoff of a debt, this is no longer an option. That debt collector is done spending time on your case and they will not help you. Therefore, you must request removal prior to the payoff! Understand that a verbal agreement with a debt collector is as good as a promise from a used car salesman. Get something in writing that shows that the debt collector will delete the record from your credit report upon receipt of $XXX.XX towards that debt. One of the best ways to accomplish this is to send the collector a “pay for deletion agreement.”

Pay for Deletion Agreement

A pay for deletion agreement is a written contract that spells out what the debt collector will do upon receipt of your money. At the end of the day, the debt collector wants to maximize profits as quickly as possible. Many are willing to consider deleting your negative credit reference regarding their firm altogether if you will render a sizable payment promptly.

Once the debt collector agrees to your proposal, make sure that you receive a signed copy before you send payment. Also, make sure that your payment matches what you promised and is in a form that can be tracked. You should either keep a carbon copy of the money order that you sent or a copy of the cancelled check as it appears in your online banking. Follow through to pull your credit report a month later to ensure that they held up their end of the bargain. If not, continue to contact them until they comply with their written agreement.

For a sample pay for deletion agreement, consider searching online for a draft copy. Many attorneys freely post such templates on the Internet. You can simply find one that fits your needs, and then modify it so that it matches your situation. Keep in mind that if you do not negotiate this deletion prior to submitting payment, the chances of getting approval afterwards are very low.

Bankruptcy counseling is an additional requirement that must be met as a condition for certain individual bankruptcy filings. The Bankruptcy Abuse Prevention and Consumer Protection Act set a maximum charge of $50 for bankruptcy counseling that could be charged to an individual client.

Some of these bankruptcy courses are available online, and you can expect to pay the full $50 for those courses. If you are facing real hardship and want to actually learn something from your situation, then you might consider visiting a credit counseling organization for bankruptcy counseling.

Many of these consumer credit counseling service organizations are willing to heavily discount that fee. In some cases, the fee may be waived in its entirety.

Online courses are very popular since the debtor may remain anonymous and complete the requirement from the privacy of their own home. However, you should understand that credit counseling organizations do not judge you. You should expect that the average credit counselor sees far worse situations on a weekly basis.

You will first want to make sure that the agency is certified by the U.S. Bankruptcy Trustee. Alabama and North Carolina require separate certifications.

The course should take about an hour to an hour and a half. Upon completion, you will receive a certificate that will document that you have met the requirement. This course is known as pre-bankruptcy counseling, and the fee will be up to $50.

A post-filing debtor education course is also required as a condition of discharge of your debt. This course may take an hour and a half to two hours to complete. You will also be requested to pay a fee of $50 to $100. Again, you may request a partial or full waiver of this fee if it creates a hardship for you.

The U.S. Department of Justice publishes a listing of approved credit counseling agencies that provide bankruptcy counseling. Not all credit counseling organizations provide this service, so it is important that you confirm that the agency can provide a certificate for you. A separate listing of approved debtor education programs is also provided by the U.S. Bankruptcy Trustee.

Dear Yvonne:

Your situation is similar to that of many families that have found themselves suddenly unable to afford their monthly debt payments due to a big drop in income. It certainly makes it difficult to manage the same amount of expenses using less money.

First, let’s look at some of your options that might help with your immediate needs:

• Given that you have a relatively high amount of unsecured debt and that you are having trouble meeting minimum payments, you should seek credit counseling immediately. If a debt management program is feasible, you might be able to reduce your payments considerably to the point that you can eek by for a few months until your income begins to pick back up. If a debt management program is not feasible, then your credit counselor can discuss additional options.
• If you need protection from creditors that are pursuing legal action against you, then an attorney can discuss various options under the bankruptcy code. These options can depend on your household income, the average income where you live and your total indebtedness. One type of bankruptcy might be more advantageous over the other depending on your assets, laws in your state and your long-term income.
• You might find that certain unneeded assets could be sold to help you pay off some of that debt, thereby freeing up your monthly budget to where it might be better balanced. Examples may include a boat, motorcycle, extra car or even collectibles.
• Nontraditional sources of income might also help you raise some much needed income. Some single debtors might consider a roommate option. Since you are married, you might look for other possibilities, such as helping with child care or other odd jobs in your neighborhood.
• Finally, you might want to look at the laws in your state to see what types of legal actions are possible. Since you are in North Carolina, you might be particularly interested in the fact that private creditors cannot currently obtain levies or garnishments against North Carolina residents. Of course, you will need to verify your legal options on your own or with the help of qualified legal counsel. Perhaps riding out the tough times is an option, in which you would pay the price for your lower credit with higher future borrowing costs and other related consequences of damaged credit.

Whatever option you go with, you should take action now

I am aware of the fraudulent mortgage modification companies that exploited vulnerable homeowners that were unable to keep up with their mortgage payments. This appeared to be a new wrinkle on an old scam. These companies were trying to cash in on drivers who could not afford their car payments.

The claims were that they could lower your car payments by modifying your loan. Of course, only your lender can modify your loan, and that’s only if they determine it to be in their best interests, not yours.

Apparently I was not the only one who recognized the deception in their ads. Of course, the national television commercials were sure to attract a lot of attention. Florida’s Attorney General Bill McCollum also spotted the scam.

Auto Relief Group LLC was shut down. Furthermore, the companies assets were seized by court-appointed Receiver Daniel Stermer. Stermer has a lot of experience with financial scams as he is also serving as receiver for the Hess Kennedy Law Firm scam.

I examined the entire car loan modification model and discovered that there are two distinct categories of organizations. Some companies draw you in for a modification but really focus on refinancing the loan. While this is an indirect response, it might be an option for someone with an unaffordable loan.

The illicit operations are the ones that promise loan modifications but instead take your money and send letters on your behalf. These clients are paying $300-400 on average for someone to insert their name into a form letter and drop it in the mail to the lender.

There is no crime in being relatively ineffective as a company. The problem lies in the deceptive advertising that these loan modification companies use to falsely imply that they are a realistic option for someone having trouble with car payments. They are making claims of success rates, relationships with lenders and other false implications that they cannot deliver.

Ultimately, it is up to you to decide when a company is reputable and when their are deceptive. The Better Business Bureau often shows the first warning signs for a problem company. You can often spot a scam well before regulators are able to act and shut down these rogue operators.

If you are having trouble with your car loan, try contacting your lender to see if they will work with you. You might be surprised that many lenders will make small changes to help you get back on track without having to modify your loan!

Be thankful that you discovered the futility of debt settlement plans before you threw away thousands of dollars on fees. Most of their clients are not so fortunate.

You can cancel the agreement prior to your first payment, which is the best time to do so. Otherwise, you will likely lose your first several payments as fees until you cancel.

Calling the debt settlement company to verbally cancel is not sufficient. You need to provide them with a written request to terminate the contract.

I recommend faxing and then mailing a termination letter to them. You should keep a copy of the letter that you send. Additionally, sending the termination letter via certified U.S. Mail with a return receipt provides you with proof that the letter was delivered and signed for by an authorized representative for the company.

You will need to consult the contract that you signed to make sure that you have met their requirements for termination. They may provide a specific address or some other requirement that you should follow to ensure that they get the message.

Finally, you will likely see a termination fee in the contract. It is common for debt settlement companies to charge a fee of roughly $200-300 if you terminate the contract prior to completion. This fee is usually drawn down from the funds that you have already submitted. Since you have not yet made a payment, they would have to request a separate payment from you.

Well over 90% of debt settlement company clients fail to complete their plans. It is unlikely that the company would vigorously pursue a termination fee from you. If they do, you should consider fighting it.

It is worth mentioning to your bank that you initially approved an automatic payment plan to that company but that you have cancelled their agreement. Your banker can make sure that no unauthorized debits occur.

Now that you have saved yourself from certain failure, you still will need to address your financial situation. I strongly recommend that you pursue credit counseling to evaluate the seriousness of your situation and to determine available options. As is the case with contracting with any company, you should ensure that the credit counseling organization is reputable. The Better Business Bureau is a good place to go to make sure that the organization has a good track record.

Dear Tomi from Texas:

You are correct that the 7 year reporting period is indeed reset when you made a payment on each of those debts. That means that those accounts can still be listed up to 7 years from the date that you resolved each debt. Your payoff date is now the date of last activity.

In previous years, this meant that your credit scores would continue to suffer because of this activity. What would occur is an old account that was in your long-term payment history would be brought back into your recent credit history. A few years ago, this would cause your scores to drop.

Obviously, no consumer should be penalized by paying off an old account. After all, this is exactly the type of responsible consumer behavior that is supposed to be rewarded in your credit scores.

Fair Isaac Corp. (creator of FICO scoring) made a change to credit scoring formulas to eliminate the penalty for paying off an old account. Therefore, even though those accounts can appear on your credit reports longer, they will not drop your scores.

Your credit scores may or may not increase after paying off an old debt. However, they should not decrease. You did the right thing, and your credit scores will continue to rise as you make more good decisions.

Dear Isma,

Unfortunately, you have experienced the common problem of dealing with a debt settlement company. Your creditors are beginning to sue you long before your debt settlement plan can accumulate enough proceeds for a settlement.

This low balance is due to the extreme upfront cost that debt settlement companies charge for their “services.” Since you agreed to these costs as a part of your contract, you are likely unable to receive a refund of any of those fees.

You have lost access to the money in which you have paid as fees. You may be eligible for a refund of that $660 so that you may combine it with your own funds and attempt to settle directly with your creditor. Keep in mind that some debt settlement companies also charge a termination fee, which could be at least $300.

You may also wish to lean on your debt settlement company to make them earn their fees. Sometimes threatening to file a complaint with regulators may cause them to try and do something on your behalf. In the end, you will likely find that your payments to your debt settlement company have been wasted.

Since your debt settlement company failed to provide the services in which they promised you, I recommend filing formal complaints with the following entities:

• Better  Business Bureau report on GHS Solutions
• Your state’s Attorney General
• Federal Trade Commission

You may also wish to share details of your debt settlement nightmare with others at Debtors Unite.

I think that you will be hard pressed to find any legitimate and reputable institution willing to loan for settlement pay offs. As a matter of fact, you are going to have a hard time convincing lenders to fund any type of risky loan given the difficult economic times that we are in.

Keep in mind that as you move away from traditional lenders, the risks that you take as a borrower tend to increase. Lesser known alternative lenders that might be willing to participate in this type of lending will likely impose unfavorable terms.

If you do succeed in getting a loan to use toward settling defaulted debts, understand that it will likely require collateral to protect the lender. If you defaulted on the original debts, what is to stop you from defaulting on their loan too? That will be their primary concern.

Of course, debt settlement companies claim to be able to offer services once you have accumulated enough of a balance through monthly payments into an account. Still, you have to ask yourself why they need to take such high fees in the beginning when they have yet to do anything on your behalf. If you venture into this type of arrangement, first check to see what are the pros and cons of debt settlement.

Bank of America announced they would stop allowing overdrafts caused by debit card usage. Instead of getting charged an overdraft fee on your debit card purchase, your transaction will be denied.

Most consumers would rather face the one-time embarrassment and gather the change they have on hand to make that purchase rather than incur over $100 in overdraft fees for three small purchases. Of course, if image is more important than your finances, you are welcome to opt in to overdraft “privileges.”

When an industry giant like Bank of America makes a change this big, it puts tremendous pressure on other banks to follow the move. Expect most banks to end the practice by this summer.

Related Article:

Bank of America Ends Overdraft Fees on Debit Cards

Allegro was initially sued and subsequently found to be substantially in violation of the Deceptive Trade Practices Act and the Sale of Checks Act. The court ruling clears the way for Allegro to be closed and its assets to be seized.

Refunds on the Way

Approximately $12 million in assets have been seized by the court and will be turned over to a court appointed receiver. Louis Colley has been appointed by the court to administer the funds in such a way to best benefit the 15,000 clients of Allegro.

A similar seizure was made in the Hess Kennedy debt settlement scheme back in late 2008. Those client received their refunds the first week of January, 2010. Based on that timeline, it is reasonable to expect that refunds in the Allegro debt settlement schemes could take a year or more to be distributed to clients. Additionally, those clients were paid 25% of what they had paid in. Therefore, it is expected that only a fraction of amounts paid in would be refunded. So far, the amount available for Allegro clients appears to only average $800 per client.

Clients should contact the court appointed receiver so that they can register their claim prior to the deadline. Affected clients should also share their experience so that others may avoid similar debt settlement schemes that are still operating illegally all over the country.

Unfortunately, Allegro is very similar to many of the other debt settlement companies still operating illegally today. Each one of these companies continues to defraud vulnerable clients who are trying to get help with paying their bills. How has Allegro affected you?