Tier Two of your defense system is to aim directly at the source, the reporting creditor.

These methods are disclosed with two assumptions: a) the reader is a person of integrity and would not use these methods to commit fraud, and b) the reader is working with very limited financial resources, and must get the maximum return in exchange for dispersing those resources to numerous creditors.

NOTE: You must negotiate with the firm that reported the item on your credit file, be it a collection agency or the original creditor. Only they can change the reported status of the account. To negotiate with the collection agency is a waste of time unless they are the name on your file.

When evaluating your options and the firmness of your negotiations, there are several factors that you need to consider.

1) Accuracy and Proof

First, look at the accuracy of the information. If you can prove the information is incorrect with your documentation, then you can afford to be very firm in what you demand.

On the other hand, even if the information is incorrect, but you can not document that fact, then you must take basically the same negotiating position as you would if you were attempting to remove accurate, yet negative, information. That would be to posture yourself as an amicable, good person trying to overcome the aftermath of negative circumstances through negotiations.  In other words, you are trying to go back and, to the best of your ability, historically undo a very difficult time in your life.

2) Type

Is the debt secured or unsecured?

If secured, that means that the creditor has possession of an asset, or title to an asset belonging to you. In matters such as this, you have less leverage--with the exception of disputing inaccurate information. But in situations where you are attempting to link the size and haste of your payoff to "how the creditor will report it on your file," you have virtually no leverage. The creditor can just seize and sell your asset in most cases.

If the debt is unsecured, then it's a whole different ball game. Most consumers overestimate the risk involved with overdue debts. They worry about possible repercussions such as wage garnishment and property seizure by their creditors. The fact is very few creditors will push all the way to a garnishment on a small unsecured debt.

Garnishments and seizures are most often used as mental leverage to gain an emotional edge over the debtor using fear to help  collect past due debt. The reality for creditors is they are expensive and time-consuming. Even if the creditor went all the way to recover the debt, they probably wouldn't be able to recover enough to offset their collection costs.

At the same time, you need to be aware that the creditor does have the right to pursue these remedies there are some risk of financial reprisals when a debt goes unpaid. It just doesn't happen very often.

U.S. bankruptcies are being filed in record numbers, and often for relatively small amounts of debt. Many consumers, strained by the fear of an unknown future, perceive bankruptcy as a way of relief.

These consumers are so intimidated by their creditors, that they flee to bankruptcy, even though bankruptcy can bring total financial devastation for at least the next ten years...

Consider the size of the debt. The smaller the outstanding balance, the greater your odds for success because it becomes less cost effective for a creditor to pursue. Most creditors will not devote a lot of effort to collecting just a few hundred dollars.

 However, if the amount is less than two hundred dollars, a creditor may not even devote the effort to negotiate.

4) Age

You also must consider the age of the debt and its status.  Eventually, a creditor will give up an attempt to collect on a debt, and in order to gain some financial benefit will write it off as a loss and take a tax deduction. This is referred to as a charge-off or a profit & loss.

If this is an old debt that was charged off by the creditor, it doesn't mean that you no longer owe the debt; it simply shows that they have given up hope of collecting it. The creditor may then collect on the debt themselves, sell or assign the debt to a collection agency, press for a judgment and garnishment, or temporarily ignore the debt. Most often this is the end of it.

However, a recent delinquency will be treated with urgency and pressure by the creditor. It is helpful for you to understand the motivation of the original creditor to settle.

If they turn the account over to their collection agency, there are certainly no guarantees that the amount will be collected; and even if it is, they will have to share it with the agency.

They may get considerably less than what you're offering now if you file bankruptcy. If they don't work with you, and you're in a critical situation, let them know that they are going to force you into bankruptcy.

If they take legal action and get a judgment, they risk getting nothing, or it may take years before they get a penny.

Most creditors would much rather have something guaranteed than pursue the expense of legal action with a risk of getting nothing. A few states won't even allow anyone to garnish wages which means they would have to wait until you sold a major asset and had to clear the title before they could enforce their judgment. This is referred to as a debtor's state, meaning the debtor is at an advantage. For this reason, and the daunting cost, the majority of creditors just charge off a bad account as a business loss after a few months in the hands of a third-party collection agency. They then report it on your credit as such and leave it at that.

Occasionally, a beginner in the collection agency industry may offer to purchase their charge-offs. So it is possible that an agency may call you after a year or even two years of silence.  Realize then that they are not collecting on behalf of your original creditor; they simply took a gamble by purchasing a batch of old bad accounts dirt cheap to try to make some money.

5) Recent Payment History

It may sound strange at first, but if you have been paying your bills on time recently, the creditor will be less inclined to settle for less. The logic being that they are getting their money now anyway. If you have been chronically late and it looks like you could go belly-up any day now, then they will sense a real potential for loss and be much quicker to accept a reasonable offer.

This is by no means meant to imply that you should stop paying your bills so that your creditors will be more likely to settle with you. This is merely to help you access your negotiating position as affected by your most recent payment record.

6) Also, major considerations are things such as the laws of your state, as well as your prognosis of your ability to repay the debt at some point in the future. Will you have more money to put toward the problem in the near future, or is this as good a shot as you're likely to get?