At times, you may be able to settle with collections companies directly.  This works best if you have few creditors and you have some cash handy to pay them in a lump sum.

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If you owe many creditors, you might be wasting time and money.  Even if you settle with one creditor, you may not be able to reach an agreement with the other(s) and at that point it may have been less painful to file a bankruptcy and be done.

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Depending on the size of the Debt, it is wise to review the Debt with a Debt Collection Lawyer.  You may not owe the Debt at all or perhaps the creditor can't possibly win a lawsuit.  Any contact with a Creditor, can "verify" the Debt and you lose valuable defenses if you do get sued on that debt. 

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Factors that affect what amount you can a settle a Debt for

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Settling with a creditor is part art, luck and money.  An older debt is much easier to negotiate because age decreases the likelihood of collection success and you get closer to the statute of limitations which terminates the ability for a creditor to sue.  (A credit card debt collection is worth very little after 5-years because they can no longer sue you in Illinois).  If you notice the Debt has been handled by various collection firms, this also helps because every subsequent collection firm bought your debt for a lower amount.  Smaller collection firms may have some flexibility if their finances are tight, but this may not be necessarily true if the collection firm is actually an "in-house collection company" for the main creditor.  

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Locally in Chicago, you will see large collection law firms such as Blitt and Gaines, Harris and Harris, Markhoff Law and each has unique communication preferences and processes for Debt Settlement.  An experienced Debt Settlement Lawyer can help you overcome these hurdles.

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Most creditors are happy to execute a payment plan with you but they generally won't give you a break if you do.  But, if you can afford a larger one-time payment, you are much better off.

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If you can muster about a 40% to 50% settlement you are doing great!

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Is a payment plan with a Creditor a good idea?

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Generally, no.  For several reasons: 

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A.  It resets your statute of limitations; and

B.  You may lose certain defenses (FDCPA) by affirming the debt;

C.  You usually don't get a discount;

D. The improvement on your credit score seems to be small.

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Collection companies will pressure you to make a payment, even a small one.  The reason is that it resets your period in which they can sue from you.  By making a payment, you've simply bought yourself five more years of calls.  You may also lose many defenses that you may have to the debt to begin with.  For that reason alone, especially for larger debts I would see a Debt Settlement attorney.

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The credit report formulas are a secret, but quizzically, I usually don't see a large increase in credit score from a paid-off debt.  The big jump comes when it drops off the credit report.  This is great if you can get it, but often do not because it violates their terms of agreement with the credit bureau.  An experienced Debt Settlement Attorney can really help here.

 

Bottom line.  Pay a discounted amount in a lump sum and try to get an agreement to delete the negative reporting.   Don't forget to get your "paid-in-full" in writing.         

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