Negotiating a Debt With a Collection Agency

Posted by Matt Douglas

January 7, 2010

Understanding how collection agencies operate and how they settle debts can be very beneficial. By approaching this process correctly, you can succeed in saving yourself a substantial amount of money and even begin to rebuild your credit.

We know that in these tough times of economic instability, it is becoming increasingly hard to keep up with all your financial obligations. If this is the case with you and you are beginning to fall behind on your payments, call the creditor immediately and attempt to work out a payment plan.

Being unable to arrange a payment plan with your creditor will ultimately cause increased anxiety as a collection agency will probably be assigned your debt. In addition to this, your credit score will spiral downward. It will be extremely helpful at this point if you understand the process of debt settlement.

It is important to know and understand that the collection agency probably purchased your debt at just a few cents on the dollar. Most often, collection agencies purchase debt at 8 cents to 12 cents on the dollar, so a debt of $500 might be purchased for as little as $40 or a debt of $6,000 may be purchased for as little as $480.

In spite of this, settling for a small amount will not be the collection agency’s idea. Getting as much as they can from you is, after all, how they make money. In order to scare you into agreeing to pay the full amount and quickly, they may even threaten a legal suit.

However, legal action represents money, time, and effort on the part of the collection agency and, in light of this, it will normally not follow through with this threat. After purchasing your debt for cents on the dollar, your debt may, in fact, amount to very little to them. You should not, however, ignore any of the collection agency’s attempts to contact you. Your goal, as with the collection agency, is to settle this debt and get it behind you.

Collection agencies like lump sum payments so, if you have the funds, make an offer. A good beginning offer to the negotiation would be to settle the debt in full for twenty-five percent (25%) of the original amount owed. Then, you should wait for a response from the collection agency. It may come back with a counteroffer. The process may continue this way until an agreement is reached. It is vitally important that you keep copies of all documentation to and from the collection agency. Be sure to obtain the final agreement in writing.

If you don’t have the money to offer a lump sum payment, try to arrange a payment plan with the collection agency. If the collection agency can see that you are making an attempt to pay, it is likely that they will not take the matter to court.

Whether you decide to offer a lump sum payment or to make payments, make sure that the agreement includes that the “debt will be deleted in its entirety” from your credit record. Otherwise, the debt may stay on your credit report for seven years, thereby negatively impacting your credit rating for years to come.

To summarize, approach the collection agency confidently and make an offer. Do not allow bullying to sway you, stand firm. However, you must keep in mind that you do owe this debt and collection agencies earn their bread and butter by collecting debt. In light of this, try to be fair when negotiating, but obtain the best rate possible. Additionally, do not ignore any communication you may receive from a collection agency. If you follow the recommendations in this article, you may be able to clear up that outstanding debt.

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Negotiating a Debt With a Collection Agency

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