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How to Negotiate with Debt Collectors: A Step-by-Step Guide for Successful Debt Settlement

how to negotiate with debt collectors

If you have delinquent debt sent to collections, you’re probably inundated with phone calls, letters, and messages from debt collectors demanding payment. It can be stressful to deal with credit card debt, medical debt, payday loans, MCA debt, and other types of debt that are in collections and dragging down your credit score. But if you know how to negotiate with debt collectors — or hire an attorney to negotiate on your behalf — you can potentially work out a deal that satisfies both parties and gets you out of debt faster.

Here’s what you should know if you want to negotiate with a collection agency and secure a settlement.

Know Your Rights

As a debtor, it’s important to understand your rights and protections regarding collection activities. That includes rights under the Fair Debt Collection Practices Act (FDCPA). This set of federal laws dictates what third-party debt collectors can and can’t do. Some of the major protections under this act include:

  • Communication. Debt collectors can’t contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m. unless you agree to it. They also can’t contact you at work if they’re told you cannot get calls there.
  • Harassment or abuse. Debt collectors may not harass or use abusive practices toward you or any third parties they contact. That includes using threats of violence or harm or obscene or profane language.
  • False statements: Debt collectors can’t lie when attempting to collect a debt. For example, they can’t falsely claim that they are law enforcement representatives or misrepresent the amount you owe.
  • Legal actions. Debt collectors are only allowed to threaten you with legal action if they intend to do so.

Dealing With Aggressive Debt Collectors

If you’re uncomfortable with how a debt collector communicates with you, send a written request asking them to stop contacting you. According to the FDCPA, once a debt collector receives this request, they can’t contact you again. That is, with two exceptions:

  • To tell you there will be no further contact.
  • To inform you they or the creditor intend to take a specific action, like filing a lawsuit.

Note that stopping communications doesn’t mean you no longer owe the debt. You still must repay what you owe or face several potentially severe consequences.

If you feel your rights were violated, report the incident to your state’s attorney general’s office and the Federal Trade Commission (FTC). You can also file a complaint with the Consumer Financial Protection Bureau (CFPB). 

If the violations continue, you may want to consult with an attorney who is familiar with debt collection laws. If a debt collection agency violates the FDCPA, you can sue them for damages. In fact, you could potentially recover up to $1,000 if you prove a violation occurred, as well as other court costs and attorney’s fees.

Verifying a Debt

Verifying a debt is one of the first steps in negotiating with debt collectors. When a debt collector first contacts you, you have a right under the FDCPA to request a debt validation letter. This verifies the legitimacy of the debt and includes the amount owed, the name of the creditor to whom the debt is currently owed, and how to proceed if you dispute the debt. The debt collector is obligated to provide this information as long as you request it within 30 days of receipt of the initial communication from them. After receiving your verification request, the debt collector has to stop all collection efforts until they send you the validation. 

Once you receive the debt validation, review it carefully to make sure the debt is yours, and the amount is correct. If you still do not recognize the debt or find discrepancies, you may need to consult with a debt relief lawyer.

Keep a copy of all correspondence with debt collectors, so you have a record. It’s best to send any letters by certified mail with a return receipt requested.

How to Negotiate With Debt Collectors

Once you’ve verified your debt, you can start negotiating a solution to your outstanding debt with collectors.

Prepare for Negotiations

Start by getting a thorough understanding of your debt situation. This includes knowing who you owe, how much, and any interest or fees that may have accumulated. If you need clarification on any details, request them from the collector or the original creditor. It would help if you also gathered as much documentation surrounding your debts as possible, including statements, payment confirmations, and communications from creditors and collectors.

Next, assess your financial situation and determine how much you can realistically put toward debt payments. Whether it’s a lump sum or monthly installments, be honest about what you can afford to offer as repayment. This will be the basis for your negotiation of debt.

This could involve asking for a reduction in the full debt owed, proposing a payment plan, or requesting the removal of the debt from your credit report once it’s paid. Be prepared to explain why the collector should accept your offer.

Communicating the Right Way

When contacting debt collectors and beginning negotiations, it’s important to use the right communication methods. For instance, even if the conversation gets tense, maintaining your composure will help you stay in control. You should always be professional and courteous.

It’s also important to be honest in your conversations. Don’t make promises you can’t keep or misrepresent your financial situation. Let them know if you can’t afford to pay the amount they’re demanding. At the same time, however, you don’t want to provide unnecessary information that could be used against you. Be careful not to give the collector any additional personal or financial information they don’t need, including details about your income, expenses, or other debts. (Often, a debt relief attorney can negotiate without disclosing personal details and avoid disclosing certain information.)

Also, keep detailed records of your conversations, including the date and time, the person you spoke with, and what you talked about. This information can be important if there’s a dispute later on. Finally, whenever possible, communicate with debt collectors in writing for a record of what’s been said and agreed upon. Even if you negotiate over the phone, follow up with a letter confirming the agreement’s details.

Tips for a Successful Negotiation

When negotiating with debt collectors, there are a few tactics you can use to ensure you reach the best deal for you:

  • Start low. If you’re negotiating a settlement amount, starting with a low offer is best. The collector may counter with a higher amount, but this gives you some wiggle room to negotiate.
  • Emphasize your hardship and desire to settle. Debt collectors will only agree to a settlement if it’s clear that you don’t have the resources to pay in full, but you are willing to pay something. Many debt collectors would rather agree to a settlement than spend time and money on a lawsuit or ongoing collections efforts. However, remember that’s not always the case, and they could still decide to pursue legal action. 
  • Only share what’s necessary. Remember, only provide information about your income, expenses, and other financial information that is directly requested. The collector could use this information to demand a higher payment and possibly to further collect on the debt or enforce a judgment against you.
  • Be flexible. A lump-sum payment is common when settling debt, but it’s not the only deal you could work out. For example, a debt collector may also agree to a partial or reduced monthly payment plan, allowing you to pay less overall but spread out payments if you don’t have much cash. 
  • Consider hiring a professional. Consider hiring a debt settlement attorney if your debt is substantial and the negotiation process is overwhelming. They can guide you through the process and potentially negotiate a better deal on your behalf. After all, debt relief attorneys have plenty of experience with these types of debt negotiations and often know what offers work well.

Finalizing the Debt Settlement Agreement

Once you’ve reached an agreement with a debt collector, follow these steps to wrap up the deal and begin getting your finances back on track:

Get the settlement offer in writing.

Before you make a payment, request a written agreement stating the terms of your settlement. This letter should detail the amount you agreed to pay, the payment date(s), and the payment settled the debt in full. This is your proof in case there are any disputes in the future.

Save all documentation.

Keep the debt settlement agreement letter and proof of your payments. You should hold onto this documentation for several years in case questions arise later. Also, this will be necessary if the debt appears on your credit report, and you need to dispute that.

Monitor your credit report.

Check your credit report a few weeks after settling the debt to ensure the account is reported as “settled” or “paid.” If the debt isn’t reported correctly, you can dispute the error with the credit bureaus (Experian, Equifax, and TransUnion) and provide them with your proof of settlement.

Understand the tax implications.

Keep in mind that settled debt might be considered taxable income. That means you may need to pay income taxes on the full settled amount for the year that it’s canceled. The IRS considers any debt forgiven over $600 as taxable, and you should receive a 1099-C form if this is the case. Consult with a tax professional or experienced debt settlement attorney to understand your tax and other financial obligations when settling debt and how to handle paying your tax bill.

Stay on top of your payments.

Reaching an agreement with debt collectors can take quite a bit of time and effort. Once you’ve reached a settlement, you can finally start working toward a debt-free future. So be sure to pay up according to your revised contract. Otherwise, you could end up right back where you started. Even one missed payment can cause problems.

Do You Need to Hire a Debt Help Attorney?

While you can negotiate with debt collectors independently, not everyone has the time, skills, patience, or desire. Suppose you have multiple debts with different creditors. In that case, if the amounts are large, or if legal action is threatened or involved, it’s probably a good idea to hire a legal professional with experience settling debts. While it might cost a little, the value of peace of mind and having the debt settled correctly is priceless.

A debt relief attorney can negotiate your debts on your behalf and represent you in court if you are sued or have been sued by a creditor. They can also ensure your rights are protected throughout the process. Plus, an experienced attorney may be able to secure a better deal than you could on your own.

Let Tayne Law Help You

Tayne Law Group has assisted individuals and businesses with resolving their debt issues for over two decades. We offer a free phone consultation to learn more about how we can help. So contact our law offices if you’re facing constant calls and messages from debt collectors or are facing debt collections and need help with what to do next. Call (866) 890-7337 or fill out our short contact form. We never share or sell your information, and all conversations are confidential.

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