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Negotiating with debt collectors is a stressful and, at times, complicated process, but it needs to be done, if you want to become debt-free.
You should not ignore the collector. Instead, use this opportunity to learn more about your debt, come up with the maximum amount that you can realistically pay, and begin the negotiation process. After reaching an agreement, you would have to make sure that you fulfill your obligations — this is the only way to take care of your debt and, potentially, avoid ruining your credit score.
Many individuals do not think through the consequences of allowing debt to accumulate. But even if your account has already been acquired by a collection agency, you still have time to come up with a suitable debt repayment plan.
Key Takeaways
If you owe a collection agency, they are likely to accept a smaller amount
Remember that their primary goals are to receive more than what they have paid, cover any additional costs, avoid paying court costs, and make some sort of profit.
If you want to get on the phone and make a deal with a debt collector, here are some steps to follow.
First things first, you would have to make sure that the debt is yours.
Remember that the collection agency must send you a written validation notice within 5 days after first contact with the following information:
If the debt is not yours or if you do not agree with the amount owed, you have 30 days to take action.
In case you still don’t have a budget, you should create one. The amount that you can manage to pay every month is typically less or equal to 36% of your monthly income. Anything above that can easily become unachievable.
If for any reason you do not have an income at the moment, find out what benefits you might be eligible for, contact a nonprofit credit counselor, or start looking for a gig job.
Knowing where you stand financially will help you negotiate debt more effectively. Depending on what you can cover at the moment, you would usually be left with two options:
As collection agencies are willing to receive at least something from you, many would agree to come up with an affordable repayment plan.
Remember that these payments should not compromise your ability to pay rent, buy groceries, and take care of your utility bills, so ensure to spend some time calculating the maximum monthly payment that you can make while continuing to live your normal life.
Related: Consider saving strategies for managing credit card debt
You might not be able to take care of the whole debt amount, but if you have a lump sum in your emergency fund or savings account, the collector might agree to lower the total amount owed.
Communication is key to success. Stay calm when talking to the debt collector and don’t be afraid to explain your situation.
Tip:
If the collector agrees to settle your debt for less than what you initially owed or if you have come up with a repayment plan, you will need a written agreement that includes:
Always keep all of the necessary receipts and ask the agency for a letter of completion once you finally manage to settle the debt.
You can choose to make your credit report part of the negotiation process.
Explain that you’re taking steps to take care of the problem and emphasize that a clean report would help you tremendously in achieving your goals.
In case the collector agrees to settle for an amount less than you owe, try to make the expert agree to report the debt as ‘paid in full’ to the credit bureaus, and get written confirmation from the collector and creditor.
The original creditor would typically give you anywhere between 6 and 9 months to pay what you owe. In case that does not happen, the creditor might choose to sell your debt to a collection agency.
To collect the debt, the agency would have to contact you, and they are allowed to do that by phone, social media, or mailbox between 8 a.m. and 9 p.m.
After receiving such a letter or call, it is always a good idea to contact your creditor. The professional would help you verify the name of the agency that has acquired your account. The collection agency, in turn, will send you a debt validation notice with the necessary information within 5 days after they first call you.
You will have 30 days after receiving the notice to dispute the amount or request any additional information. It might be tempting to block the collector’s number and stop answering the calls, but you should never do that. Ignoring the agency would only make the problem worse.
If the collector has purchased your debt from the creditor, it’s already past due.
A collection agency typically pays far less than the debt’s actual value to acquire it. Debt buyers often purchase the "package" through a bidding process and pay, on average, 4 cents for every dollar of debt.
That’s exactly why you should put your negotiation skills to the test. Though all collection agencies would try to receive the entire amount from you, the percentage of debt generally accepted in a settlement ranges between 30% and 80%.
If you’re planning on paying less than what you owe, your chances for success would be higher in case you manage to offer a lump-sum payment. The collection agency might agree to take $600 if your debt is $1,000, for example, but only if you’re ready to make the payment here and now.
However, that does not mean that there’s no room left for negotiation.
Before making your suggestion, determine the maximum amount that you can realistically pay. After that, start with a lower offer. For instance, if you won’t be able to cover more than 50% of the full debt amount, begin the negotiation process by offering 25% of the sum.
Remember that the collector would try to make you pay more, but you shouldn’t agree with a sum that is higher than your maximum limit.
In case you can’t afford to pay a lump sum at the moment or if the collector is not willing to accept the amount offered, setting up an affordable payment schedule might be your only other option.
With a debt settlement program, you might manage to pay off your debt over 12-48 months and, in some cases, you may even be able to negotiate a lower amount due.
However, bear in mind that settling on a lower amount generally harms your credit score. The “settled” status will remain on your report for 7 years, but that’s certainly a better option than not paying off your debt at all and ignoring the calls of the collectors.
If your debts have been turned over to a collection agency, it means that your credit score has already gotten hurt. To avoid ruining it completely, ideally, you would want to pay off the whole amount in the shortest timeframe.
Debt settlement can lower your credit score by 100 points or even more. So, if you can pay a lump sum, you should do that.
If you want to avoid damaging your score, but you don’t have the necessary funds at the minute, you might want to consider taking out a loan.
What Are Your Rights and Protections?
The Fair Debt Collection Practices Act protects you from abusive and/or unfair collection practices. You have the right to contact an attorney, if a collector is lying, threatening you, or trying to get more than you owe. Furthermore:
The statute of limitations on debt is the amount of time (typically between 3 and 7 years) a collector has to file a lawsuit against the debtor. The exact timeframe would depend on the state you live in, the state specified in the contract, and the type of debt.
After the statute of limitation passes, the debt collector can no longer sue the debtholder. That does not mean that the debt will disappear, and the majority of collectors will still try to collect what you owe. With that being said, the agencies might be more willing to negotiate if the statute of limitations expiration is approaching.
More Things To Know About Debt Collection
We've gone over a lot of information and here are some additional things to keep in mind.
Not all debt is created equal. There are different ways to negotiate and rules depending on the type of debt, so we've gathered some additional information below.
For medical debt, it is common to negotiate for a smaller amount than what you were billed.
In case you are uninsured, the medical services provider might settle for the amount that the insurance company would pay for the services.
Use the Fair Health Consumer website to get an estimate of the costs. Don’t forget to ask for an itemized copy of your billing. About 80% of medical bills contain errors, so always look for payments included for services that were not provided, double-billing, etc.
Such debt can be more challenging to negotiate as in this case, collectors have more ways to recoup the money.
If your car has been repossessed the loan company might still try to make you pay off the part of the sum that did not get covered after selling the car.
In case you’re not planning on voluntarily surrendering, the lender might ask for a writ of possession. If that happens, get help from a professional attorney as soon as possible.
Need more information on debt negotiation? Check out these frequently asked questions we get on the topic.
Start at about 25% to provide room for negotiation.
All agencies are different, but it’s okay to offer a low-ball payment just to see what the collector is ready to accept.
The amount the agency will agree on can differ. It is not uncommon for some collectors to settle for as little as 30%, but it might be difficult to settle on anything lower than that.
Now you know exactly how to negotiate with debt collectors, but is that the right thing to do?
Negotiating is better than not paying at all and ignoring the collectors. And if you manage to include your credit report in the negotiation as well, this might turn out to be a win-win situation.
With that being said, if you realistically can pay off your debt all at once, doing that would be better than initiating the negotiation process. Such a solution would have the least impact on your credit score and psychological well-being.
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