One of my newsletter subscribers had a question about how to best dispute a medical debt. She found out that a collection account for $1,879 appears on her Equifax credit report, based on a $2,000 surgery she had back in 2004.

This individual (who is also unemployed) said she’d paid monthly on the bill at various points over the years, but then all of a sudden she stopped being sent monthly statements. So her question was:  Should I dispute this bill with Equifax, or should I go directly to the collection agency?

Here’s my reply.

Don’t start with a dispute to the credit bureaus over this matter — since you said this is a bill that you know you do, in fact, owe.

Start with the collection agency. Try to negotiate a settlement with them. Offer to begin a monthly payment plan that you can truly afford. Alternatively, if you can afford a lump sump payment to knock out the bill, even better — because you’ll also be better positioned to improve your credit rating.

If you have some cash on hand to make a lump payment on your medical bill, you can make a settlement offer of pennies on the dollar. For example, if your outstanding medical debt is still $1,879, you can say something like: “I have $900 that I am prepared to send you as payment in full for this debt. But in exchange for me making this lump sum payment, I would need you to DELETE all negative references to my credit reports.” This way you’ll be paying less than 50% of the bill, plus clearing up your credit report.

If the collection agency agrees, get everything IN WRITING (you write the letter spelling out the agreement) before you send that money. This strategy is called using a “Payment for Deletion” to clear up your credit. It often works, because collection agencies usually get collection accounts in one of two ways:

1) the account was “assigned” or transferred to them from a creditor, and they get paid on a commission basis, based on the dollar amount that they can collect from the debtor; or

2) they bought your debt for pennies on the dollar (they likely secured your $1,879 medical debt for just a few hundred dollars, if that). So any money they get above the amount they spent acquiring the debt represents a profit for them.

One last point: you said you were originally told your surgery was $2,000 …. that was 5 years ago, and you indicated you were paying it on at various times over the years.

So if the amount they claim you owe is $1,879 (only $121 less than your original debt), it sounds like they probably tacked on considerable interest charges, penalties, and other fees. Try to negotiate on this basis also. State your case (i.e. you were never sent bills, tell them that you are unemployed, but only if you really still are, etc.) and then request that all late fees and finance charges be eliminated from the bill. That will help you knock down the debt.

Also, if you end up not being able to reach any resolution, and you do in fact, dispute the AMOUNT of debt that you owe, then that’s when you would go to the credit bureau and dispute this item on your credit report. If you can’t clear this matter up, be aware that any negative references on your credit report stays there for seven years from the time you last went delinquent (i.e. if you last payment was made in Nov. 2008, this item would stay on your credit report until Nov. 2015).

Hope this info helps. Good luck!