Dear Liz: I paid all of my old collection accounts except for two, which now are beyond the statute of limitations. I would like to find the best way to negotiate with the collection agencies without getting sued. Even though the original delinquency was over four years ago, the agencies are reporting these every month as current debt, which is really hurting my credit score. My intent is to offer a lump-sum settlement amount if they will remove the report from my credit file with the bureaus, or alternately in return for a "paid" notation on my report file. However, I cannot afford to pay the amount they say I owe.
Answer: If the collection agencies are simply reporting your debts each month with a correct "date of last activity" — usually the date you stopped paying the original creditor — your credit scores aren't being hurt anew each month. If the agencies are reporting a new date of last activity each month, however, they are illegally re-aging your debts. You can dispute this illegal reporting with the credit bureaus and directly with the collection agencies. If the errors aren't corrected, you can file a complaint with the Consumer Financial Protection Bureau, which took over regulation of the major credit bureaus last year.
Filing disputes is not something you'd want to do if the debts are still within the statute of limitations, said Michael Bovee, president of Consumers Recovery Network, which specializes in debt settlement. You wouldn't want to draw attention to yourself or your debts. But you run little risk in filing a dispute now since the debts are too old for the collectors to file a legitimate lawsuit.
Bovee said that simply contacting the agencies about the debts shouldn't restart the statute of limitations, but debt expert Gerri Detweiler of Credit.com advised caution.
"It may be well worth it to consult a consumer law attorney," Detweiler said. "Otherwise [you] may reset the clock on these debts and owe the entire amount plus interest."
You can get referrals to consumer law attorneys at the National Assn. of Consumer Advocates, http://www.naca.net.
You don't have to pay the reported debts in full to reach a settlement, Bovee and Detweiler agreed. Often the totals reported are inflated by interest and fees, and the collection agencies probably paid only pennies on the dollar to buy this debt.
Start by saying you have only so much money to work with and offer 20% to 30% of what the agency says you owe.
"A realistic expectation for negotiating a debt this old would be to settle the account for 50% or less than the current balance owed," Bovee said. "If they raise objections, there is no problem in mentioning that you are aware that the debt is past the statute of limitations for you to be sued, but that you are just trying to do the right thing."
Don't say you're trying to improve your credit, since that gives the collector leverage over you, Bovee said.
You can negotiate to have the collections deleted from your credit reports, but the original delinquencies and charge-offs will remain and will continue to affect your credit scores until they pass the seven-year mark.
Checking annuity pitches
Dear Liz: I think you missed one of the possibilities when a reader wrote to you about a pitch he received from an insurance salesman. The salesman wanted the reader to stop funding his 401(k) and instead invest in a contract that would guarantee his principal but cap his returns in any given year. You thought the salesman was pitching an equity indexed annuity, but it's possible he was promoting an indexed universal life policy, which would offer the same guarantees of principal and offer tax-free loans.
Answer: You may be correct — in which case the product being pitched is just as unlikely to be a good fit for the 61-year-old reader as an equity indexed annuity.
Cash-value life insurance policies typically have high expenses and make sense only when there's a permanent need for life insurance. If the reader doesn't have people who are financially dependent on him, he may not need life insurance at all.
Furthermore, the "lapse rate" for cash-value life insurance policies tends to be high, which means many people stop paying the costly premiums long before they accumulate any cash value that can be tapped.
Before you invest in any annuity or life insurance product, get an independent second opinion. One way is to run the product past a fee-only financial planner, who should be able to analyze the product and advise you of options that may be a better fit for your situation. If you just want a detailed analysis of the policy itself, you can pay $100 to EvaluateLifeInsurance.org, which is run by former state insurance commissioner James Hunt.
Questions may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the "Contact" form at asklizweston.com. Distributed by No More Red Inc.