How to Negotiate with Debt Collectors

If you have an account in collections, it may feel like you have no recourse but to pay the amount the debt collection agency says you owe. However, many debt collectors are willing to accept a lesser amount when you make an effort to negotiate. Going through the process of negotiating with debt collectors takes some know-how, though. You need to first understand how debt collectors work, followed by the steps you can take to negotiate successfully to pay less than the amount they are demanding.

How Collections Work

Collections agencies purchase unpaid, delinquent debts from lenders and other creditors for a percentage of the total amount owed, typically between 10 and 15% of the original debt. Once the debt is purchased, borrowers no longer work with the original creditor to handle repayment. Instead, they are contacted by the debt collection agency and payment is requested – or demanded. Any amount the debt collector is able to secure from the borrower above and beyond the price paid for the debt is profit for the agency. This means negotiation is common in debt collections, putting you as the debtor in the driver’s seat.

Steps for Negotiation

When you receive a call or demand letter from a debt collection agency, you may think you have no choice but to pay the amount they are requesting. The reality is you have the option to negotiate your debt down to a fraction of what was originally owed. It is important to note that you are still legally responsible for the full amount. However, if negotiations go your way and you are able to pay less than the full debt, you can save money while clearing out delinquent accounts in the process.

Here’s what you need to know for negotiating debt with collectors.

  1. Verify the debt
  2. Know What You Can Afford
  3. Expect a Counter Offer
  4. Get the Agreement in Writing, Then Pay
  5. Check Your Credit

Step 1 – Verify the debt
Before jumping into the negotiation process, be sure the debt the collector says you owe is actually yours. Creditors and debt collection agencies make mistakes. If you have already paid the debt or it isn’t yours to pay, you have nothing to negotiate. Instead, request that the debt collector verify the debt before starting negotiations. If they cannot verify it is you who owes the money, the debt can be disputed – without paying – through the credit bureaus. When the debt is validated, you can proceed with the following negotiation steps.

Step 2 – Know What You Can Afford
After validating the debt, you need to take a step back to determine the amount you can afford to repay. Some debt collectors will accept a monthly repayment plan as a negotiated settlement, but others will require a lump sum payment if the amount is less than the full balance owed. Consider your ability to make timely payments each month based on your budget, or determine what you can contribute as a single payment before getting in touch with the collections agency. As a general rule of thumb, offering 40 to 50% of the amount owed is a good place to start.

Step 3 – Expect a Counter Offer
Once you have the amount in mind, offer the lower amount to a collections agency. They will likely come back with a counteroffer in response. Be prepared for this step by beginning your negotiations with a low number. The idea here is that the debt collector’s counter will be higher than your original offer, but less than the full amount owed.

Step 4 – Get the Agreement in Writing, Then Pay
Before making any payment to the collections agency, get the negotiated amount in writing. While you may feel confident that the debt collector will stand by his or her word on the phone, it isn’t wise to pay without having your deal finalized with a written document. Once you have that in hand, contact the debt collector to make your agreed upon payment.

Step 5 – Check Your Credit
After paying a negotiated collections debt, be sure to check your credit periodically. Debt collection agencies may fail to report your paid debt to the credit bureaus, meaning the effort you put into negotiating and making a payment hasn’t yet helped your credit score or history. If the debt is not marked as paid, contact the debt collection agency first to get this rectified. If that does not produce the right outcome, dispute the entry through the credit bureaus.

Negotiating with debt collectors can be a tedious process, but ultimately, it may be worth the time and effort.

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