Money Research Collective’s editorial team solely created this content. Opinions are their own, but compensation and in-depth research determine where and how companies may appear. Many featured companies advertise with us. How we make money.
How to Negotiate With Debt Collectors
By Bianca Rodríguez Rojas MONEY RESEARCH COLLECTIVE
Negotiating with debt collectors may seem like a daunting task, but it’s not impossible. You’ll have to understand how collectors work, calculate how much you can pay and then enter the negotiation process.
When you’re struggling financially, engaging with debt collectors can be an added stressor. However, doing so could help you manage and pay off your debts, which in turn helps you avoid further damage to your credit.
Read our guide on how to negotiate with debt collectors so you know how to approach the process confidently and secure better repayment terms.
How to negotiate with debt collectors (step by step)
Here’s what you need to do when your debt is sent to collections and you want to negotiate with the debt collection agency:
Step 1: Understand how debt collection agencies work
Knowing how debt collection agencies work will help you navigate the negotiation process.
First, it’s good to know how and why creditors sell debt to collectors. Often a credit card issuer or medical services provider (among other original creditors) sell their delinquent accounts to collection agencies as a way to get so-called “bad debt” off their books. Doing so also allows them to get tax benefits related to these types of expenses.
Creditors sell the debt for less than what is owed. For example, a creditor may sell a $1,000 debt for $200 or less. This difference in amount means the agency may be open to negotiate for a lesser amount than what you owe.
It’s important to note that when your debt is sent to collections it has a negative impact on your credit score in the short term. Additionally, the mark stays on our credit report for seven years, but its impact will diminish over time, as bureaus place more weight on recent information in your report.
Step 2: Prepare what to say (and not say)
In any negotiation, staying cool, calm and collected goes a long way in helping you succeed. It’s normal to feel stressed when dealing with debt sent to collection. However, there’s no law forcing collectors to negotiate with you, so even if the bill collector becomes hostile, do your best to avoid becoming contentious.
What not to say to debt collectors
When speaking to collectors, only disclose the information necessary to support your claim. Avoid sharing details about your personal or financial situation if it’s not necessary to your arguments. This is because collectors can record any information you provide and use it to collect your debt.
In this regard, the Consumer Financial Protection Bureau (CFPB) advises that you should never share your personal information (including their name, bank account information, full social security number, among others) if you’re unsure whether the collection agency is legitimate or a scam.
To avoid being the victim of a scam, make sure you don’t skip the next step: asking the agency to validate your debt.
Step 3: Ask the debt collection agency to validate your debt
When collectors first contact you, request a written validation of the debt before providing information or sending in a payment. Debt collection agencies must provide this as it’s required by law.
This written document should include your name, address, the name of the original creditor, the account in collection and account balance. Analyze all the details carefully to verify that the debt belongs to you.
If you don’t believe this account belongs to you, the law affords you 30 days to dispute it. During this validation process, collectors must stop all collections.
The agency must stop all collection activities and have the debt removed from your credit report if the debt doesn’t belong to you.
Step 4: Come up with a reasonable repayment plan or settlement proposal
Once the agency validates the debt belongs to you, the next step is negotiating a settlement.
Before you contact the agency, you must determine what amount you could manage to pay. Think of your overall budget when coming up with an amount. Consider the following:
- How much can you pay – Take stock of your income and financial obligations to see how much you can afford to pay. Avoid allocating all or most of the available budget to pay off the debt. Remember to leave some money aside every month to cover emergencies.
- How you want to pay it – You must decide if you want to pay the debt in small monthly payments or a lump-sum payment.
If you need help coming up with a debt management plan, there are non-profit organizations that offer free credit counseling. You can also consider hiring a credit repair company, but these will charge for their services.
Step 5: Make sure all agreements are set in writing
Get any agreement you reach in writing on official company letterhead before making any payments. This way you have a record of the terms you reach with the collector. Having this proof protects you in case the collector makes changes to your agreement or claims they never agreed to the terms.
Follow up with the collection agency, if necessary, until they provide this written confirmation of your agreement. After you have this document, then you can begin making the lump sum or monthly payments as established in the agreement.
How to Negotiate with Debt Collectors FAQs
What percentage should I offer to settle debt?
While debt collectors may settle for less than you owe, what percentage they’ll accept will depend on the agency. You can offer to pay a low percentage (such as 25% to 30%) of what you owe as a starting offer and negotiate from there until you reach an agreement. Some agencies could settle for just around a third of the total, but keep in mind that others may want a higher percentage.
When is the best time to initiate a negotiation?
It’s best to start negotiating with debt collectors as soon as they contact you. Ignoring or not answering calls and letters will only lead to significant penalties such as late fees, higher interest rates and even legal action. Keep in mind that creditors are more inclined to recover some of the debt rather than nothing. And remember to have all your documents and information in order to support your claim before you initiate negotiations.