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Published: Jun 10, 2022 14 min read
Illustration of various debt collector letters that are past due
Money; Getty Images

If you’ve got past due debt and don’t want to pay the full amount, you may be able to negotiate that debt down significantly. Depending on your personal finance goals, this move can be helpful for paying down debt faster, in some cases, improving your credit profile. If you want more information on how to negotiate your debt in these situations, we’ll break down what you need to do, step by step.

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How to negotiate with creditors the right way

Although you can negotiate directly with your creditors, a debt management tactic that works especially well for medical bills, we’ll focus on negotiating down your debt once it’s been sent to collections. If you follow these steps, you should be able to negotiate your debt to an amount that works best for you.

Understand how debt collection agencies work

If you understand how debt collection agencies work, you’ll be empowered to negotiate the best arrangement possible. Original creditors — say, a credit card company — sell their delinquent accounts to debt collection agencies to get “bad debt” off their books and access the related tax benefits of this type of expense.

Many agencies specialize in the type of debt they collect, usually by amount and age. Reputable ones will also only collect debt within their state’s statute of limitations. Delinquent debt can include credit card debt, student loans (or other kinds of loans), and utility or cell phone bills.

Debt collection agencies must rely on the debtor to settle their debt, and as such, they can’t go into your bank account, even if they have the account information and routing number.

Knowing that collection agencies buy debt for pennies on the dollar helps you understand the bill collectors’ motivations. If your original debt was $700 and they purchased it for $200, you know there could be some wiggle room to negotiate a settlement to pay less than the original $700 amount.

The debt collection agency wants to, at a minimum, recoup their original investment plus a profit, often between 25% to 50%. No matter what they want out of the situation, you should still do your best to get the most favorable settlement possible.

Fully comprehend the extent of the debt

Although it might be tempting to comply with a debt collector’s request for money right away, take some time to figure out what’s going on. Get the correct information regarding:

  1. The amount of the original debt
  2. The name and address of the original creditor
  3. The date the debt became delinquent

By law, creditors have to supply this information within 5 days of contacting you.

If you know how to get a credit report, then you can also get information about this debt from there. Make sure everything matches up both on your credit report, as reported by all three credit bureaus along with the information from the debt collector. Now, you can get free credit reports weekly to stay on top of all the updates that hit your credit report.

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Know your rights under the Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is legislation designed to prevent abusive, deceptive, and unfair debt collection practices of debt collectors. When this legislation was proposed, findings suggested that abusive debt collection practices “contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy.” In November 2021, the Consumer Financial Protection Bureau (CFPB)’s Debt Collection Rule provided clarification on some of the provisions in the FDCPA, namely related to how you can be contacted.

Provisions of this legislation give you several rights that you should be aware of:

  • Debt collectors may call you between the hours of 8:00 am and 9:00 pm in your local time zone unless you give them permission to conduct phone calls outside those hours.
  • In some cases, debt collectors may be prohibited from contacting you at your place of employment.
  • You can request, in writing, that debt collectors stop calling you and communicate via other means instead.
  • Debt collectors may contact your friends, relatives or employer to find out your phone number or where you live, but they cannot reveal details about the debt owed.
  • Debt collectors cannot engage in any type of harassment that includes profane, abusive or threatening language when attempting to collect a debt.
  • You have a right to dispute your credit report and get validation of the debt. Debt collection activities must stop if you dispute it within a certain time period.
  • Debt collectors can contact you on social media and send a friend request, but they must make clear that they’re a debt collector.

If a debt collector or credit is found to be in violation of the FDCPA, the statutory damages are up to $1,000 for each action. It’s also possible that you might be able to get actual damages, attorneys' fees, and court costs.

Depending on the entity you are dealing with, your only recourse may be to file a complaint with the Federal Trade Commission (FTC) which will conduct its own investigation and, as needed, take action against the creditor. Finally, you should know that the FDCPA only applies to third-party debt collectors like debt collection agencies. Original creditors are not bound by the FDCPA.

Ask the debt collection agency to validate your debt

As mentioned above, you have the right to get all the information pertaining to the debt. Within 5 days of contacting you, the debt collection agency has to verify details around the original debt like the name and address of the original creditor, amount, date incurred, etc. They should also have your correct contact information connected to the debt to make sure that it’s actually yours.

If you don’t believe the debt is yours, you have up to 30 days to dispute it. While the collector is confirming the validity of the debt, they can’t engage in any collection activities. If the debt can’t be verified, the collection agency has to stop collection activities and remove it from your credit report.

Need help coming up with the best letters to communicate with debt collectors? The Consumer Financial Protection Bureau has a number of debt collection letter templates you can use to send to the collection agency.

Come up with a reasonable repayment or settlement proposal

If it turns out that the debt is yours and it belongs to you, then it might be best to start planning for the payoff. Many times, debt collectors have purchased your debt from the original debt at pennies on the dollar.

If all they want to do is recoup their initial investment and make some profit, then there might be room to settle for a partial payment. Keep in mind that not paying the full amount of your debt could show up on your credit and count as a mark against you. Though it’s not as bad as having unpaid debts, you should know that a settlement could put negative information on your credit profile and impact on your credit score.

When negotiating down your debt, come up with an amount that makes sense for your budget.It might be a good idea to consider using a credit counselor for a debt management plan which offers some level of debt consolidation, without going into debt consolidation loans. Credit counseling can often be found for free through non-profit organizations and can help you with your credit repair process (another option for this last issue is looking into credit repair companies).

If you can make a lump-sum payment, consider that in your negotiations. If you need more room in your budget, propose a longer repayment plan with lower installments of monthly payments. If your goal is to knock out the debt quickly, then make larger payments over a smaller amount of time. You could also pay in a single lump sum.

We should also note here that starting a payment plan for old debts could reactivate an account. If this debt was slated to fall off your credit report due to the statute of limitations or reaching the 7-year mark, it could have a negative impact on your credit. Starting a payment plan will create new activity on this debt, and it may also restart the clock for both statute of limitations and your credit profile.

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Negotiate with the collection agency using your proposal

Once you have a clear view of your position, it’s time to negotiate a settlement offer. If possible, avoid presenting your settlement offer first. Let the other side make the first suggestion, then present a counteroffer with a lower number. Repeat this back-and-forth process until you arrive at a settlement amount you are happy with.

It’s ok to start negotiations with a lowball offer. You may think there’s no reason to start with what might seem to be a somewhat absurd proposal, but you might be surprised to find that the debt collector is agreeable to your offer. It never hurts to try!

Tip: While you may be inclined to go with a debt settlement company, be wary of some red flags, such as promising to settle all your debt or charging money before settling your debt. If their debt relief package sounds good to be true, it likely is. Further, some creditors may refuse to work with a debt settlement company at all.

Make sure all agreements are set in writing

Debt collection agencies are notorious for not keeping a record of payment agreements or even reneging on them. The representatives you talk to may or may not annotate your account with the details of your conversations or payment arrangements you’ve negotiated.

Before you think your arrangement is set in stone and begin making payments, make sure the debt collection puts your payment arrangement in writing on official company letterhead. That way, if they deviate from the agreement or claim to have no record of it, you’ve got your bases covered.

If some time passes and you still haven’t received a letter from the debt collection agency, you should reach out to them. Be persistent until your letter on official company letterhead comes in the mail from the debt collection offices.

Keep calm, be patient and be careful about what you say

Although dealing with debt and debt collectors can add stress to your life, do your best to stay calm and level-headed. Even if a bill collector is rude or becomes belligerent, keep your cool. Be polite and keep records of the dates and times you communicate with the debt collector.

Also, avoid divulging too much information about your personal and financial situation. As all collectors inform you in their communications, any information you give them can be collected and used to help collect your debt. Provide just enough information to support your negotiations and nothing more, if at all possible.

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Summary of Money’s guide for negotiating with debt collectors

  1. Understand how debt collection agencies work
  2. Fully comprehend the extent of the debt (and learn how to read your credit report)
  3. Know your rights under the Fair Debt Credit Collections Practices Act
  4. Ask the debt collection agency to validate your debt
  5. Come up with a reasonable repayment or settlement proposal
  6. Negotiate with the collection agency using your proposal
  7. Make sure all agreements are set in writing
  8. Keep calm, be patient and be careful about what you say