Negotiating Debt Settlements With Collectors

Here 's how to negotiate your unsecured debts with debt collectors.

By , Attorney UCLA School of Law
Updated by Amy Loftsgordon, Attorney University of Denver Sturm College of Law
Updated 11/26/2024

Most debts that go to collection agencies are unsecured debts, such as credit card, cell phone, utility, and medical debts. If the creditor is flexible, it might accept a settlement below the full amount to avoid spending months futilely trying to collect the whole thing.

If you have some cash to offer a payoff of the debt or want to change the payment terms so they're more favorable to you, consider negotiating with the collector. Options for settling the debt include:

  • offering a lump-sum settlement
  • working out a payment plan, and
  • negotiating improvement to your credit reports.

But before you start negotiating with collectors, you need to plan and devise a strategy.

Should I Negotiate With Debt Collectors to Settle My Debts?

If you have money available and only a few unsecured debts, settling them for a lump sum or repaying them through a payment plan might be a good way to dig yourself out of a financial hole.

However, before you attempt to settle your unsecured debts for less than you owe, you should determine whether another option, like filing for bankruptcy, might be a better way to go.

When to Consider Filing for Bankruptcy

If you have a lot of unsecured debt that you could get discharged (eliminated), bankruptcy might be a better choice. While your credit will take a major hit, it's probably already significantly damaged by your missed debt payments.

The most common types of bankruptcy cases that individuals file are Chapter 7 and Chapter 13.

  • Chapter 7. A Chapter 7 bankruptcy case allows you to eliminate many types of debt. With a Chapter 7 bankruptcy case, you might be able to eliminate most of your unsecured debt, including medical bills and credit cards. You may also surrender real estate or vehicles you've financed if you don't want to keep those debts.
  • Chapter 13. A Chapter 13 bankruptcy case allows you to restructure your debts through a supervised repayment plan. With a Chapter 13 bankruptcy case, you repay a portion of your unsecured debts through the court-supervised repayment plan. Depending on your circumstances, you might be able to pay for your vehicle at a reduced rate and also save your home from foreclosure and the vehicle from repossession.

As soon as you file for bankruptcy, an automatic stay goes into place. The stay prohibits most creditors and collectors from continuing collection activity against you. The automatic stay has the power to stop harassing phone calls, lawsuits, garnishments, repossessions, and foreclosures.

If you need help analyzing your situation and options, consult a debt relief or a bankruptcy lawyer. Talking to a nonprofit credit counseling agency, such as a member of the National Foundation for Credit Counseling (NFCC), can also be helpful.

What to Keep in Mind When Negotiating Debts

If you're sure you want to settle your debts rather than filing bankruptcy or some other option, understand the following key points before you start negotiations with the debt collector or collection agency.

The collection agency didn't lend you the money or extend you credit initially. A debt collector doesn't care if you owe $250 or $2,500. It just wants to maximize its return, which might be a percentage of what it collects or whatever it can collect over the pennies on the dollar it paid for the debt.

Time is money. Each time the collection agency contacts you, whether by letter, call, email, or text, it spends money. The agency has a strong interest in getting you to pay as much as you can as fast as possible. It has less interest in collecting 100% over five years.

Review your debt priorities. It's also important to review your debt priorities before you start negotiations. If you don't have the cash to make a realistic lump-sum offer or to propose a payment plan, don't even talk to the collector—you might make promises you can't keep or give the agency more information than it already has. Or, worse, you could say something that turns a time-barred debt into a brand-new debt.

How to Negotiate With Debt Collectors

When negotiating with debt collectors, start by validating the debt, including the amount owed and the collector's authority to collect it. After you confirm the debt is valid, review your finances to determine how much you can afford. Decide whether to offer a lump-sum payment or negotiate a manageable payment plan. (Read more about these options below.)

Steps in the Debt Negotiation Process

The steps you should take in the debt negotiation process are:

  1. Come up with a plan and then stick to that plan.
  2. Offer a reasonable amount based on your financial situation, and don't be afraid to counter their initial demands.
  3. Always get the agreement in writing. The agreement should include all settlement terms, such as the amount, deadlines, and assurance that the debt will be reported as paid or settled to the credit bureaus.
  4. Don't make any payments until you have a signed document.

Understand Your Rights

Also, you should understand your legal protections under the Fair Debt Collection Practices Act (FDCPA) or applicable state laws. These laws protect debtors from collector harassment and prohibit unfair collection practices, like contacting you at odd hours or misrepresenting the debt.

Offer a Lump-Sum Settlement

One option for settling a debt is to offer a lump sum to pay off the debt for less than you owe. Collectors are often willing to accept less if it ensures payment.

What Percentage Should I Offer to Settle Debt?

Some collectors want 75%–80% of what you owe. Others will take 50%, while others might settle for one-third or less. So, it makes sense to start low with your first offer and see what happens.

And be aware that some collectors won't accept anything less than the total debt amount.

What Is Considered the Best Approach to Negotiating with Debt Collectors?

If you can afford it, proposing a lump-sum settlement is generally the best option and the one most collectors will readily agree to. A collection agency will have more incentive to settle with you if you can pay all at once.

If you owe $500 and suggest paying $300 on the spot to settle the matter, the agency can take its fee, pay the balance to the original creditor (who treats the amount you don't pay as a business loss), and close its books. If the collector owns the debt, it keeps the money, which usually ends up being a profit.

Determine Your Maximum Amount

Before you make an offer, decide your maximum amount and stick to it. Once the collector sees you'll pay something, it will try to talk you into paying more. Don't agree to pay more than you can afford. For help preparing a settlement proposal, get Nolo's eForm Offer to Settle Debt With a Reduced Lump-Sum Payment.

Make Payments Over Time

If you say you can pay the debt in monthly installments, the agency has little incentive to compromise for less than the full amount. It still has to chase you for payment, and it knows from experience that many people stop paying after a month or two.

Before a collection agency will consider accepting monthly installments, it might have you fill out asset, income, and expense statements. Two points to keep in mind:

  • You could be giving the collection agency more information about you than it previously had, like where you currently work and bank, and that might not be to your advantage.
  • Don't lie. You might be signing these forms under penalty of perjury. It's unlikely that you would ever be prosecuted for lying on the forms, but if the creditor later sues over the debt, lies can only hurt your case.

If you reach an agreement with the collector, get a written confirmation. For help in crafting a payment plan offer, get Nolo's eForm Offer to Pay Debt in Installments.

Negotiate Improvement to Your Credit Reports

While you negotiate settlement of the amount you owe, you can also ask the collector to agree to report your debt a certain way on your credit reports. The three major credit reporting bureaus (Experian, Equifax, and TransUnion) produce credit reports.

Ask the collector to tell the bureaus to remove any negative information about the debt from your credit files. The collector might not agree, or it might have to get the creditor's approval, but it doesn't hurt to ask.

Debt Negotiation FAQs

How much will a debt collector settle for?

It's impossible to say how much a particular debt collector will accept to settle a debt. Debt collectors typically settle for 30% to 60% of the total owed, but the percentage can vary based on factors like how old the debt is, the collector's policies, and your financial situation. Older debts or those unlikely to be collected in full usually result in more favorable settlements.

How much should I offer a debt collector to settle?

Generally, you should start by offering 20% to 30% of the debt as a lump-sum payment (assuming you can afford this amount). This low starting point gives you room to negotiate while showing you're serious about resolving the debt. Be realistic and base your offer on what you can afford.

When is the best time to initiate a negotiation?

Negotiating is often most effective early in the collection process or if the debt is old. Collectors are sometimes more flexible if they think they won't ever recover the full amount. However, if you've received notice that a collection lawsuit has been initiated against you, you need to act promptly (and don't ignore the suit).

What is considered the best approach to negotiating with debt collectors?

The best approach when negotiating a debt settlement is to stay calm, polite, and to be prepared. Know your legal rights, validate the debt, and set a realistic offer. Keep records of the communications sent to and from the collector during the negotiations and confirm all terms in a signed agreement before making any payment.

How long do I have to wait to pay the debt after negotiating?

Collectors often expect payment shortly after settling, especially for lump-sum deals. But the exact payment deadline will depend on the agreement's terms. For payment plans, you'll need to follow the agreed-upon schedule, and ensure all payments are made on time to avoid breaching the agreement.

Should I Hire a Lawyer to Help With Negotiating My Debts?

A lawyer can negotiate for you if you need help settling your debts. Good debt settlement attorneys have negotiation skills developed over three years of law school, many years of practical experience, and extensive knowledge about debt collections.

And if you're unsure whether negotiating settlements is appropriate for your situation, an attorney can review all of your options and advise you on specific circumstances. A lawyer can help you determine whether you should attempt to negotiate your debts or if you should do something else, like file for bankruptcy. If a creditor initiates a lawsuit against you for a debt, a lawyer can defend you in the suit.

You should not, however, hire a for-profit debt settlement company and be sure to avoid other scammer debt relief companies.

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