Process

• Decide how much you can realistically pay to settle your debt. The collection agency may have paid as little as pennies on the dollar, according to MSN Money columnist Liz Pulliam Weston. Its agents may agree to accept as little as 50 percent of the total, which still means a hefty profit for the company. Insist on removal of the collection entry on your TransUnion, Experian and Equifax credit reports as a settlement condition. Erasure of the negative entry helps your credit score, although Brigitte Yuille of Bankrate.com warns that the original charged-off account still shows up.
  
  

Time Frame

• Collection agency accounts make you look bad to lenders who pull your credit reports, since they show you are ignoring a bill. The damage does not last forever, even if you never negotiate a settlement. The Federal Trade Commission advises that most negative data in your TransUnion, Experian and Equifax files is purged after seven years. Weigh the benefits of debt negotiation with the amount of time before the collection account gets erased before you pay a collection agency. Payment may not be worth it if the debt is due to disappear within the next year or two.
  
  

Considerations

• Credit collection services have a limited amount of time to sue you for debt repayment. The statute of limitations varies by state, but it is usually somewhere between three and five years, although it can run as high as 10 years, according to Bankrate.com. Never negotiate a settlement for debts older than your state's limit (see Resources). The collector cannot take legal action against you if you refuse to pay or even acknowledge the debt, but you restart the collection period by making a payment, or even agreeing on terms, in many states.
  
  

Warning

• Make the credit collection service put the terms of your negotiated settlement in writing before you hand over the money. Send your payment through certified mail, ask the post office for a return receipt and enclose a copy of the letter. This gives you proof that your payment was received and helps you enforce the terms of the settlement if the debt collector does not wish to honor them. For example, you have proof of payment in full if the collector demands more money or sells the account to another firm, and you can dispute the credit report entry if it is not removed as agreed.