When bills go unpaid for months, creditors often sell the debt or outsource its collection to third parties. Collection agencies purchase debts, often for pennies on the dollar, and make money based on how much they convince debtors to pay. Negotiating a settlement with a collection agency requires knowing in advance how much you can afford to pay and ignoring the pressure to increase that amount.
Don’t Be Afraid
The first contact from a debt collector usually is a demand for payment in full immediately, often accompanied by threats of legal action if you don't comply. If you hold firm, however, you may be able to settle for less. Collection agencies are paid based on what they collect, and individual agents earn their commission based on that metric. If you don't pay them anything, they don't make any profit, so holding out for the full amount doesn't make sense for them if they don't think you can or will pay that total. Determine how much you can afford to pay while still meeting your other obligations, and use that to come up with your eventual offer.
Know Your Rights
Debt collectors are limited by federal law as to how far they can go in attempting to collect debts. They can't call before 8 a.m. or after 9 p.m. and can't call you at work if you've told them you can't accept calls there. If you request proof of the debt, agencies must send that proof. Collection agencies can't discuss the debt with anyone other than you, your spouse and your attorney. They can't use threats of violence or harm, use profanity, publish your name as someone who owes money or use the phone to harass you. They also can't give you false information. For example, they can't say you risk jail time for failing to pay your debt or threaten legal action if the circumstances don't allow it.
Determine Debt Ownership
Determine who owns the debt before making a settlement offer. If the agency owns the debt, its basis isn't the amount you owe; rather, it's the amount the agency paid to purchase the debt. It also means the agency has the final say in deciding how much to accept, and that gives you more room to negotiate the total. If the original creditor still owns the debt and simply outsourced its collection efforts, the collection agency may claim it's not authorized to accept less than the amount owed. If that's the case, ask the agency who has the authority to negotiate settlements and deal with that individual.
Make the Offer
Some collectors will accept less than the balance owed if they can get the money at once, so lump sum payments usually are the most attractive. There isn't a set sum that always appeals to collection agencies; 50 percent of the balance sometimes works, while others want close to the amount owed. Older debt that's been sold multiple times may have been acquired so cheaply that a smaller amount will be acceptable. Make your initial offer below the amount you've already decided you're willing to pay. You can offer to pay the balance in installments, but since this delays the time until the collection agency gets its money, such an approach is less likely to result in a settlement for less than the amount owed.
Consider Other Variables
The best time to offer a settlement to an agency often comes at the end of the month, when agents are focused on hitting their targets for that period. In addition to the amount of money you will pay, consider other variables you want to negotiate. The Nolo legal website suggests you make the settlement offer contingent on the agency removing negative information about the delinquency from your credit report, as this can prevent your credit rating from worsening. Ensure any settlement means the debt is marked paid to prevent the selling of any unpaid amount to another collection agency.