How do I negotiate with collections agencies?


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28 August 2019

Most debt collection agencies are willing to work out deals to help you clean up your outstanding balances. Here's how you can negotiate with them.

While having an account in collections is challenging, the good news is that most debt collection agencies are willing to work out deals to help you clean up your outstanding balances. Because many debt collection agencies purchase debts for pennies on the dollar as part of their business model, those companies have an incentive to collect on the original amount owed.

At the same time, this gives them the ability to be flexible in negotiating payment from consumers—a strategy that you can use to your advantage. You may be even able to negotiate a settlement on your debt for 25-percent to 30-percent of the debt of what your originally owed.

Begin by calling the collection agency (you can find their contact information on your credit report) and asking to speak with a representative to resolve your issue. You’ll want to ensure that the call is recorded in states where this is legal, as well as receive a settlement agreement in writing to have proof that the debt was marked as “paid in full” for the agreed-upon settlement amount.

When dealing with the collections agent, here are the two ways you can handle negotiations.

Try offering a lump sum settlement

While there’s no rule of thumb as to how much a given collection agency will accept, you can start off knowing that it’s better for them to get as much as possible up front. Collection agencies either get their fee at that point, or if they own the debt, they get to keep the amount - which is a profit to them.


The lump sum you offer could be as little as a third of what you owed - if they figured you’d never pay - or as much as 75-percent to 80- percent of what you owe.


The most important thing is for you to know the top dollar amount you can afford, and then offer something lower. Collection agencies will try to push the amount as high as possible, so be sure to account for negotiation.

Finally, in some cases, if your debt is forgiven for less than you owe, the amount of the canceled debt is taxable, so ask an accountant what the real bottom line is to you.

Set up a payment plan with them

A monthly installment plan gives you less leverage, because the collections agency now doesn’t have much incentive to negotiate for a sum lower than the total you owe. And it’s likely you’ll have to jump through more hoops, because if they think you may stop making payments after a few months, they’re taking a risk on you.

When you’re setting up a monthly payment plan, you’ll likely have to fill in paperwork that details your income, expenses and assets. Keep in mind that these are legally binding documents, so be honest, because false information could only hurt your situation down the line if you’re caught in a lie. Also, if your financial information is strong, that could also work against you, as you’re giving the collections agency information that they may not have otherwise have had.

Once you reach an agreement with the collector, be sure to get the confirmation in writing.  Thanks to new scoring models like FICO Score 9, collections accounts that are paid in full are disregarded and don’t count against you any longer. So if you hear the term “pay for delete,” which is the practice of paying collectors to remove the negative information from your credit report, keep in mind that’s not necessary - since it should happen anyways!

Collections agencies are in the business of getting debts paid, so don’t be afraid to negotiate. It’s far harder to dodge collectors’ relentless calls than face up and get your debt squared away.