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How To Negotiate with Debt Collectors

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

  • Negotiating with debt collectors is a stressful but necessary process to become debt-free. Ignoring collectors is not a solution.
  • Learn about your debt that is in collections, come up with a realistic payment amount, and begin the negotiation process.

6 Steps for Negotiating with Debt Collection Agencies

If you owe a collection agency, they are likely to accept a smaller amount As the agency has bought your account for a minuscule amount, the collector would quite frequently be willing to negotiate the actual 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.

1. Learn About the Debt

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:

  • The total amount owed (including any fees and interest)
  • The name and address of the original creditor
  • The exact date your debt became delinquent

If the debt is not yours or if you do not agree with the amount owed, you have 30 days to take action.

2. Understand What You Can Afford to Offer

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:

Payment Plans

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

Partial Payments

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.

3. Speak to the Debt Collector

Communication is key to success. Stay calm when talking to the debt collector and don’t be afraid to explain your situation.

Tip: During the negotiation process, take notes or even record each conversation. This will help make sure that your agreement does not get misinterpreted. However, do bear in mind that it is legal to record calls only in the states where one-party consent is necessary.

4. Make Sure All Agreements Are in Writing

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:

  • Primary information about the debt
  • How much you’re expected to pay
  • How much you will be forgiven
  • What the repayment terms are

5. Make Your Payments

Always keep all of the necessary receipts and ask the agency for a letter of completion once you finally manage to settle the debt.

6. Negotiate Improvement To Your Credit Reports

You can choose to make your credit report part of the negotiation process. Creditors are not required to report information to the credit bureaus. That’s why you can ask the collection agency or the original creditor to remove negative information from your credit report.

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.

How Do Debt Collection Agencies Work?

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.

How To Verify That the Caller Is Allowed to Collect Debt from You

  1. Ask the individual who is calling you for the collection agency’s name and his or her professional license number (do bear in mind that debt collection licensing is not required in some states).
  2. In case you live in a state that does require such a type of licensing, search for the collector’s name in the NMLS database.
  3. Contact your creditor. Verify that your account has indeed fallen into collections and find out the name of the collection agency responsible for your account.

Infographic on negotiating debt

How To Negotiate a Past-Due Debt

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%.

Offer To Pay an Amount You Can Afford

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.

Consider Setting Up a Payment Schedule

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.

Should You Negotiate with Debt Collectors To Settle Your Debt?

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.

Alternatives If You Can’t Afford To Pay Your Debt

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:

  • Collectors are allowed to call you only between 8 a.m. and 9 a.m. unless otherwise permitted by you
  • They are not allowed to share any information about your debt
  • Collection agencies cannot contact you at work (if you tell them that you’re not allowed to receive calls there), contact you by email or on social media if you ask them to stop, and call you more than 7 times within seven days

What Is a Statute of Limitations on Debt?

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.

  • You may be able to pay only part of the amount as a lump sum. The collector might be willing to take a smaller amount if you can pay it as a single payment as this helps make sure that the expert does not spend any additional time, money, and energy.
  • Sometimes it would be better for a debt collector to accept a voluntary payment. If you are in a tough financial situation and you have practically no income, the agency might not legally be able to get any money from you even if the agency wins the case. Collectors are not allowed to take funds for essential, Social Security, and disability benefits, so if you truly can’t afford to make the payments, the agency might accept your voluntary payment.
  • The original creditor might be motivated by tax savings. Typically, creditors can get around 30% of the amount of the uncollected sum back through tax savings.  If you offer more than 30%, the original creditor might accept the proposal. 
  • You may have to report the saved amount on your taxes. If you’re able to get a settlement that is significantly less than your total debt owed (usually, over $600), the creditor will send the Internal Revenue Service a special tax form. This means that in some cases the amount of canceled debt will be taxable and you would have to report it on your tax return.

Additional Information on Specific Types of Debts

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.

Medical Debt

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. You can file a cross-complaint against your insurer if it fails to meet its obligations. 

Student Loan Debt

Such debt can be more challenging to negotiate as in this case, collectors have more ways to recoup the money. Experts suggest offering a 50-90% single payment if that's what you're dealing with.

Car Loan Debt

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.

Related Frequently Asked Questions (FAQs)

Need more information on debt negotiation? Check out these frequently asked questions we get on the topic.

What Percentage Should I Offer To Settle Debt?

Start at about 25% to provide room for negotiation.

How Much Will Debt Collectors Negotiate?

All agencies are different, but it’s okay to offer a low-ball payment just to see what the collector is ready to accept.

Will Debt Collectors Settle for 20%?

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.

Is Debt Negotiation Always the Right Move?

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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