Ask Money

Time to shed last debts

Chris Farrell Dec 6, 2010

Question: I am trying to get my credit score back on track after a period of very ill health and no medical insurance. I have a stable job now with insurance. I’ve paid off my credit card debt and have only a student loan to repay. I have two medical bills for relatively small amounts that have gone into debt collection. I know it was not a good idea to let it get this far, but bad health made it unavoidable at the time.

Now that I am able to repay these amounts, how do I go about paying them off? Do I request a settlement from the debt collection firms? How long will it take to be reflected in my credit score? Is there any other advice for dealing with debt collection companies? Shelly, Mobridge, SD

Answer: The financial difficulties you’ve been through are a major reason why I don’t understand more people aren’t embracing healthcare reform. For instance, an estimated 116 million people, or two-thirds of working age adults, were either uninsured for a time, faced steep out-of-pocket medical costs relative to their incomes, had difficulties paying their medical bills, or didn’t get the care they needed because of cost in 2007, according to a Commonwealth Fund Biennial Health Insurance Survey. You were among them. Congratulations on landing a job with health insurance and for rebuilding your finances.

Your mantra in dealing with the debts in debt collection should be: “Get everything in writing.”

First, you should decide how much you can afford to pay back. It reads as if you can pay the full amount and you’ve made it clear that you want to make good on these debts. Excellent. That said, mke sure you don’t jeopardize your current finances. Under that circumstance it makes sense to negotiate a partial settlement. has an article on negotiating with a debt collection agency.

The Privacy Rights Clearing House offers a detailed discussion of the debt collection process and how to steer clear of trouble. Here is an excerpt:

If you negotiate a repayment plan over the phone, ask the representative to send you the terms of the plan in writing. You may also write a letter that explains your understanding of the negotiated repayment plan. Payments made to a debt collector when multiple debts are involved should clearly specify to which debt the payment is to be applied. It is possible to dispute one debt, but agree to pay another. Also, any promise to remove or adjust reports in your credit history should be documented for later enforcement.

Hence the mantra, even if you pay off all the debt, to “get everything in writing.”

In essence, when it comes to your credit score the damage has been done. Still, you want the collection agency to tell the various credit bureaus that the account was “paid-as-agreed.” You will definitely see an improvement in your creit score over time. The negative effect of the debt going into collection is gone after 7 years. But the impact erodes even before that term limit with a record of paying the credit bills on time. And you could see a shorter term benefit. Your debt-to-income ratio will be better and lenders will look at you in a more positive light now that you’ve paid off all your outstanding debts (with the exception of the student loan)..

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