Debt collection calls are frequently aimed to catch you off guard and instill dread and anxiety in you. Enter the conversation with as much calm and knowledge as possible, knowing your rights as a debtor and what constitutes illegal collector action. As you assess whether the debt is yours and what your repayment approach will be, ask for documentation and smell out any fraudsters.
Can you lower your collection debt?
The majority of Americans would rather have a root canal without anaesthesia than deal with a debt collector. It is conceivable, believe it or not, to negotiate with a collection agent and pay less than you owe.
What is the reason for this? Because the collection firm purchased the initial debt from your creditor, most likely at a reduced price. That means they don’t have to make a profit on the entire amount. You can pay off the debt quickly by offering a settlement, usually for a lower amount than the original.
The collection agent is motivated to collect as much money as possible with as little effort as feasible on their part. The agent is paid on commission and receives a share of your payment.
The optimum outcome is to pay off the debt in full and have a receipt from the agency, as well as a commitment from the agency to amend the status of your account on your credit report to reflect payment.
Before you make the call, determine out how much you can afford to pay. If you commit to pay more than you can afford, it will only make things worse. Prepare for a rejection for whatever you propose at first; the agent will almost always say no at first, and it isn’t always definitive.
Here’s an example of how to get started: “Jane Doe is my name. I’ve received notification of a collection on Account #XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX I can pay you $2,000 to settle the account in full.”
If you receive a “No,” say, “I’d like to talk with a supervisor.” The supervisor has the option of declining or counter-offering. Try to figure out how much he or she truly want. For example, if a supervisor offers to waive two months’ interest if you pay the loan’s principal, the agency may really waive three or four months’ interest. Make a counter-proposal.
Don’t do it if you offer $2,000 and the agent advises $7,000, then offers to split the difference to make it $4,500. Instead, consider the $4,500 split-the-difference figure as a new high point and propose a figure somewhere between that and your original $2000 offer.
If the agent offers an offer, such as waiving interest, reducing payments, or allowing you to skip a payment, you can say, “I see,” she says, but she doesn’t commit right away. The agent may then demand something in return, such as a greater rate of interest. Make sure you don’t give up more than you get.
If the agent continues to play hardball, insisting on a payment you can’t afford, don’t fall into their trap. It’s quite acceptable to respectfully hang up and call back the next day. Negotiations can take weeks to complete.
Tell the agent that you want the bill reported as paid in full as you continue to bargain. This can have a significant impact on your credit score, so keep trying!
If you settle for less than the whole amount owing as you come closer to an agreement, make sure the creditor signs a release declaring your partial payment exempt you from paying the remaining sum.
Don’t send in post-dated cheques when sending in your payment. Regardless of the date, the collection agency or creditor can cash them at any time.
Keep in mind that you want to get everything down on paper. Obtain a receipt for the amount you paid from the collection agency. Maintain a file with copies of everything you submit the agency and everything they send you. Check to determine if the agency listed your debt as paid in whole once you and the agency have reached an agreement. If the agency fails to do so, provide the credit bureau any and all documented proof that you paid the payment.
Make sure you know how much, if any, of the debt has been forgiven. This is because, if you had a portion of your debt forgiven, you will have to pay taxes on it on April 15th. The creditor will send you a 1099 form with that information at the end of the year, but it’s good to know now so you can factor this amount into your tax preparation.
Review and familiarize yourself with your rights as a consumer under the Consumer Protection Act “The FDCPA stands for “Fair Debt Collection Practices Act.” Consult your local library or BALANCE, or go to www.ftc.gov or www.consumerfinance.gov to learn more about the Federal Trade Commission and the Consumer Financial Protection Bureau.
Offer a Lump-Sum Settlement
If you opt to pay a single sum to settle the debt for less than you owe, keep in mind that not all collection agencies follow the same rules. Some creditors want 75%–80% of what you owe. Others will accept 50%, while others will accept one-third or less.
If you can afford it, offering a lump-sum settlement is usually the best option—and the one that most collectors will gladly accept. If you can pay all of your debts at once, a collection agency will be more willing to work with you. If you owe $500 and offer to pay $300 right away to resolve the debt, the collection agency can take its fee, remit the remainder to the original creditor (who will treat the amount you don’t pay as a business loss), and close its books. If the debt is owned by the collector, the money is kept, which usually results in a profit.
Negotiate Improvement to Your Credit Report
You can ask the collector to agree to list your debt in a specific way on your credit reports while you negotiate a settlement of the amount you owe. Credit reports are produced by the three major credit reporting bureaus: Experian, Equifax, and TransUnion. Request that the collector contact the credit bureaus that any negative information about the debt be removed from your credit files. It’s possible that the collector will refuse, or that the creditor will require consent, but it doesn’t harm to inquire.
Make Payments Over Time
If you declare you can pay the bill in monthly payments, the collection agency will have little motivation to accept a lower offer. It must continue pursue payment from you, and it knows from experience that many people do not pay after a month or two.
A collection agency may ask you to fill out asset, income, and cost statements before accepting monthly installments. There are two things to keep in mind:
- You may be giving the collection agency additional information about yourself than it already has, such as where you work and bank, which may not be to your benefit.
- Don’t make any false statements. It’s possible that you’re signing these documents under penalty of perjury. Although you are unlikely to be prosecuted for lying on the paperwork, lying can only weaken your case if the creditor later sues you for the debt.
What percentage of debt will collectors settle for?
When it comes to debt settlement, there are seven measures you may take on your own.
1. Take a look at your debts. Assess your debts before you do anything else. What is the total amount you owe? What are the debtors’ names? Is it possible to pay off your debts without negotiating a settlement? Or would it be hard to get rid of your obligations without a reduction in the amount you owe?
2. Get your homework done. Look up how creditors (or debt collectors, if the creditors no longer manage the debt) handle debt settlement on the internet. If you can’t find the information you need online, phone your creditors and inquire about debt settlement. Keep in mind that a debt settlement will not be accepted by all creditors.
3. Have some cash on hand. Telling your creditors that you have money set aside to pay off the debt may give you an advantage in negotiations. This is because the majority of people prefer a lump-sum payment, however some may be satisfied with the cash amount being divided into monthly installments.
4. Get ready to bargain. It’s time to figure out what your settlement offer will be after you’ve done your homework and put some money down. Depending on whether you’re working with a debt collector or the original creditor, a creditor will usually agree to accept 40% to 50% of the debt you owe, though it might be as much as 80%. In either situation, your initial lump-sum offer should be much below 40% to 50% of the total to leave room for negotiation.
5. Make contact with your creditor. Call the creditor with your offer in hand. Request a manager or the “financial assistance” department of the creditor. You may need to call numerous times before speaking with someone who understands your problem.
6. Put it down on paper. Once you and your creditor have reached an agreement on a debt settlement, obtain the terms in writing. This will assist safeguard you in the future if difficulties arise.
7. Make the payment. You must adhere to the agreement now that it has been written down. This include paying on time (or on time if you’ve worked out a longer-term payment plan) and paying every amount you’ve promised to pay.
How to Negotiate With Creditors
Try to settle your debt for 50% or less while negotiating with a creditor, which is a reasonable goal based on creditors’ debt settlement histories. If you owe $3,000, you should aim for a $1,500 settlement. You will, however, begin your negotiations by offering to pay a percentage of the debt that is much less than 50%, in order to allow you and the creditor leeway to work out a deal.
If you’ve set aside money to make payments, whether it’s a lump-sum payment or a payment plan, be sure to inform the creditor. This could offer you an advantage in negotiations. Whether you do decide to sign a payment plan, see if the creditor may cut the debt’s interest rate to help you manage your finances. Keep a written record of all your communications with a creditor during the bargaining process. Last but not least, maintain your composure and honesty. It won’t help your cause if you’re emotional and untruthful.
Remember that most creditors will not settle a debt unless you are severely behind on payments. Additionally, if you’re negotiating with your initial creditor, they may demand that you pay up to 80% of your past-due amount.
How to Negotiate With Debt Collectors
A creditor may have passed your debt over to a debt collector in some cases. Debt collectors make money by collecting past-due bills from creditors, such as credit card companies.
Be patient when dealing with debt collectors. It can take a few tries to reach an agreement that you’re happy with. Refrain from agreeing to a deal that isn’t in your best interests. Also inquire as to whether the debt collector is willing to settle the debt over time rather than all at once with a single lump-sum payment.
Bottom Line
Negotiating a debt settlement on your own will almost probably take up a significant amount of your time and energy, and it may take a long time to achieve an agreement. In the end, though, all of your efforts can be worthwhile—especially if you’re able to better position yourself financially.
How do you get out of collections without paying?
There are three options for getting rid of collections without paying: 1) Write and submit a Goodwill letter requesting forgiveness, 2) research the Fair Credit Reporting Act and Fair Debt Collection Practices Act and draft dispute letters to oppose the collection, and 3) have a collections removal professional erase it for you.
Collections can stay on your credit record for up to seven years, making it difficult to obtain a car, a home, personal loans, credit cards, or even certain professions. It’s a wise option to do whatever you can to get rid of them as soon as possible.
Does settling a collection hurt your credit?
Yes, settling a debt rather than paying the whole amount might have a negative impact on your credit score. When you settle an account, the balance is reduced to zero, but the account will appear on your credit report as settled for less than the whole amount.
The creditor agrees to take a loss by taking less than what was owed, hence settling an account rather than paying it in full is deemed negative.
Can I pay my original creditor instead of collection agency?
Money, they say, is what makes the world go ’round. This is especially true in the United States, since our economy is largely based on debt. In the United States, there is around $14 trillion in consumer debt. Debt is used by the typical American to purchase automobiles, homes, and even groceries.
Given those figures, it’s no surprise that one out of every three Americans has a debt in collections. So don’t feel bad about it. You’re not the only one who feels this way.
After the borrower misses a few payments, the debt is turned over to collections. It’s possible that the lender won’t be able to locate the borrower or that they’ll see it as a waste of money.
The initial lender has two options for recouping part of their losses. They can first hire a third-party agency to collect the debt on their behalf. They can also sell the debt in its entirety. In any case, the debt is no longer under the control of the original lender.
You may face harsh consequences if your debt is sent to collections. Your credit score will suffer as a result. Collectors will frequently bother you, demanding money you don’t have. Finally, if a debt is unpaid for an extended period of time, the collector may file a lawsuit against you to recoup the obligation.
Even if a debt has been sent to collections, you may be able to pay the original creditor rather than the collection agency. Contact the customer care department of the creditor. You might be able to explain your position and work out a payment plan with the bank. You can engage directly with the creditor to reclaim the debt from the collector.
There is, however, no legal requirement that the original creditor accept your request. Your best bet is to get in touch with them as soon as possible. Creditors are more ready to negotiate with you before expenses mount, which normally happens within six months of your debt being turned over to a collector.
Why did my credit score drop when I paid off collections?
Paying off debt is a prudent and rewarding thing to do, so you might be startled to learn that your credit score has declined after you make a payment. The decline might have occurred for a variety of reasons, as credit scores are generated using a range of factors. A decrease in the average age of your accounts, a change in the types of credit you hold, or an increase in your overall use are the most common reasons credit scores drop after paying off debt.
It’s crucial to keep in mind, too, that credit score decreases from debt repayment are usually just temporary. In general, the advantages of debt repayment outweigh the disadvantages of a lower credit score. If your debt has a high interest rate, the amount you owe will grow over time, so lowering the balance or paying it off completely might save you a lot of money.
Still, understanding why paying off debt can lower your credit score in the near term can help you make sound financial decisions, and you can work toward a higher credit score over time.
Payment history, credit utilization, credit age, number of queries, and categories of credit are all elements that go into determining your credit score. Paying off debt may have an impact on one or more of these criteria, resulting in a decline in your credit score.
Read on to find out why your credit score may have declined after you paid off debt, as well as additional reasons why your credit score may be low and some suggestions for raising it.
What should you not say to debt collectors?
It’s also critical to keep track of what you shouldn’t discuss with debt collectors during the collection process. The following are three things you should never tell a debt collector:
Never Give Them Your Personal Information
The agent will request personal information in order to verify your identity and debt ownership.
You are not required to respond to these questions. Instead, request that the agent exclusively communicate with you by email.
Never Admit That The Debt Is Yours
There’s no reason to do this, and it could get you in hot water later if you try to dispute the amount as erroneous on your credit report.
Many old debts have bogus interest charges that you aren’t required to pay, but debt collectors will try to collect nevertheless.
It’s advisable to hang up after telling the collection agent to provide you the information in writing. You have the legal right to do so, and we’ll get to that in a moment.
Never Provide Bank Account Information
While you’re on the phone with a debt collector, they’ll try to persuade you to make a payment, even if it’s a tiny one. To complete the transaction, the agent will need your bank account or credit card details. It may appear to be a simple and quick way to end the call and get off the phone. However, this can lead to a number of serious issues:
- You Lose Leverage: Your payment is your leverage when it comes to dealing with debt collectors in the future. So don’t pay too soon and lose your most valuable bargaining chip. Save it for a time when you can receive something in exchange, such as requesting that the creditor delete unfavorable items from your credit report in exchange for a payment.
- You Share Account Information: The agent may claim that he or she will not keep your bank account or credit card information on file. You, on the other hand, have no way of knowing whether or not this is true. Additionally, debt collectors have charged you more than you committed to pay.
- The Statute of Limitations on the Obligation is Reset: Making a payment resets the statute of limitations on the debt. This provides the creditor additional time to file a lawsuit against you for losses.
It’s fine if you wish to pay off the debt or sign a payment plan, especially if it’s part of a larger debt management strategy. But first, acquire a written agreement.
Is it worth it to pay off collections?
Paying off a debt that has gone to collections will not boost your credit score, contrary to popular belief. Negative marks on your credit reports can stay on your record for up to seven years, and your credit score may not increase until the listing is erased.
Is it smart to settle with a debt collector?
It is usually preferable to pay off your debt completely if at all possible. While paying off an account may not hurt your credit as much as not paying at all, having a “settled” status on your credit report is still a bad thing.
When you settle a debt, it indicates you’ve worked out a deal with the lender and they’ve agreed to accept less than the whole amount owed as the account’s last payment. The account will be marked as “settled” or “account paid in full for less than the full sum” by the credit bureaus.
What happens if a debt collector won’t negotiate?
How you handle a rejected settlement offer depends on who owns the debt. If the collection agency rejects your settlement offer, you may want to contact the debt’s original creditor. Only if the original creditor still owns the debt and has hired a collection agency to collect on its behalf is this conceivable. Notify the original creditor of your intention to settle the loan, and see if they’ll accept your offer. The creditor may accept your offer, negotiate an alternative settlement price with you, or refer the matter back to a collection agency. However, if the original creditor transferred the debt to a collection agency, the debt is now owned by the collection agency, and it is no longer possible to negotiate with the original creditor.
How do you pay for delete?
How the ‘pay to delete’ system works. Pay for deletion begins with a phone call or a letter to the debt collector proposing a deal: When you pay off the account, the collector will remove it from your credit reports.
