Negotiating With Collectors on Unsecured Debts

Here are some options when negotiating settlement of an unsecured debt with a collection agency.

Most debts that go to collection agencies are unsecured debts, such as credit card, telephone, utility, and medical debt. If the creditor is flexible, it may be happy to accept a settlement below the full amount to avoid spending months futilely trying to collect the whole thing. If you have some cash to negotiate a payoff of the debt, or you want to change the payment terms so they are more favorable to you, consider negotiating with the collector. Read on to learn about various options and strategies for negotiation.

(If you are unsure if your debt is unsecured, see What Is an Unsecured Debt?)

Before You Contact the Collection Agency

Before you start negotiations, understand these key points:

The collection agency didn’t lend you the money or extend you credit initially. It doesn’t care if you owe $250 or $2,500. It just wants to maximize its return, which may 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. Every time the collection agency writes or calls you, 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 priorites. In addition it's important that before you start negotiations, you review your debt priorities. 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 may make promises you can’t keep or give the agency more information than it already has. Or, worse, you may say something that turns an old time-barred debt into a brand-new debt.

Options for Debt Settlement

Here are some of your options when you negotiate with the collector on an unsecured debt.

Offer a Lump Sum Settlement

If you decide to offer a lump sum, understand that no general rule applies to all collection agencies. Some want 75%–80% of what you owe. Others will take 50%. Those that have given up on you may settle for one-third or less. Before you make an offer, however, decide your top amount and stick to it. Once the collector sees you will pay something, it will try to talk you into paying more. Don’t agree to pay more than you can afford.

A collection agency will have more incentive to settle with you if you can pay all at once. If you owe $500 and offer $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.

For help in crafting a settlement offer, get Nolo's eForm Offer to Settle Debt With a Reduced Lump Sum Payment.

Negotiate Improvement to Your Credit Report

Don't forgot that 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 report. (To learn more, see Getting Debt Collectors to Remove Negative Information From Your Credit Report.)

Offer to Make Payments

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

Before a collection agency considers accepting monthly installments, it may 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, and that might not be to your advantage.
  • Don’t lie. You may 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 on the forms can only hurt your case.

Remember, 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.)

(To learn more about negotiating with creditors and settling debts, see our Debt Settlement & Negotiating With Creditors area.)

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