What is a Pay for Delete Agreement
Pay for delete agreement (PFD) is where you agree to pay off your debt (either in full or part of it) in return of their promise to erase all information on this account from your credit report.
Why Pay for Delete
Paying off debt does nothing to improve your credit score. It only updates the balance to $0 and the account status to “PAID IN FULL”, “PAID AS AGREED” or “SETTELED”, but that won’t have any positive effect on your credit score.
The only way to raise your credit score is to remove the item entirely off your credit report. Without the negative item, your credit score will re-bounce immediately (provided there are no additional such items on your report).
Can collection agencies actually do that?
The answer is very complex. Some will, some won’t.
Credit bureaus have an issue with accuracy. Your credit report should contain your entire financial history. Deleting an item from it is the same as changing history. Naturally, the credit bureaus strongly object to this practice.
If the credit bureaus find out that a collection agency has been handing out pay-for-delete agreements to debtors, they revoke that collection agency’s ability to report debts. That may not sound terrible to you, but it’s a death sentence to any collection agency.
So naturally, many collection agencies simply won’t risk it. They may be willing to take a chance for a large debt (couple of thousand dollars), but will demand that you pay a large portion of the debt, if not all.
As to you, you stand nothing to lose, because the credit bureaus can do nothing to harm you, your credit report or your score. So it’s worth giving it a try.
Can all debts be removed?
All entries that are reported by the collection company can be removed. However, some entries may be reported more than once. In that case, even if the collection agency agrees to remove their entry, it won’t achieve the desired effect.
For example, when you default on a credit card, the default is first reported by the credit card company itself, and after they sell it to a collection company it’s reported a second time. So even if the collection agency removes the item associated with them, you are still left with the original default from the credit card company.
The only items that can benefit from a pay-for-delete agreement are “single” items that are reported only by the collection agency. These include unpaid medical bills, utility bills, cellular bills, bounced checks, gym memberships and many more.
It goes without saying that secured lines of credit such as car loan or a mortgage are not open to negotiations.
Are there any downsides to pay-for-delete agreements?
There may be a down side. If the collection agency is not taking any action to collect the debt, you may be waking a sleeping giant. The collection agency may resume collection activities, including filing a lawsuit if within SOL. However, if they are already taking actions against you, then that is not too much of a concern (because they are already going after you).
Also, if the collection agency is reporting to only one credit bureau and not the others, then they could add your debt to the other two credit bureaus.
Other than these, PFD agreement is relatively safe. But validate your debt first.
How to negotiate a pay for delete agreement?
You should always start by sending a Debt Validation (DV) letter to the collection agency. Once your debt gets validated by the creditor, you need to send a Pay-for-delete letter (See this sample PFD letter).
A Pay for delete letter is sent as part of your negotiations with the collection agency. You can negotiate over the phone if you prefer to, but follow up with a written letter.
If they agree, have them send you a signed pay-for-delete agreement in writing so that you have proof that the collection agency has agreed to delete the negative item from your report, in case they refuse to remove the negative item after you pay them off.
Here are a few points to note in your negotiation:
- If they failed to provide proper documentation on the debt, either validating that the debt is actually yours or that they are entitled to collect it – mention that fact.
- If the debt is below $500, most people can afford to pay the debt in full, or a big portion of it. For debts over $500, negotiate a maximum 25%-35% of the debt (See side note below).
- Tell them that you prefer to settle quickly rather than going to court, but that you’re willing to do this only in return for them removing the item from your report.
- Present your offer as a business deal. Remind them of the handsom profit they’re about to make by accepting your offer.
Once you’ve sent the PFD letter, you need to wait until you receive a signed agreement from them, accepting your terms. Once you have a written agreement, send them the money via USPS money order or a cashier’s check. Never give them any details about your bank account.
When you negotiate a settlement, it’s important to know how much the collection agency has paid for your debt, and how much they stand to gain by agreeing to your offer.
- Debts that have been recently charged-off: around 7 cents on the dollar.
- Older accounts or accounts sold a second time: around 2 cents on the dollar.
- Years-old or out-of-statue debts: less than a penny on the dollar.