How to Negotiate With Debt Collectors

When it comes to scoring better repayment terms, your options differ depending on the type of debt.

Make sure you’re talking to a legitimate debt collector about a valid debt. (Getty Images)

Fielding calls from debt collectors is never fun. These callers, who have been tasked with collecting overdue, forgotten or delinquent loans, may phone you during the day, send collections letters to your home or even file a lawsuit for repayment.

If the debt is an affordable one you know you forgot to pay, stopping the calls can be as simple as writing a check. But in other instances, say, if the debt is sky-high, the caller sounds fishy or you’re not sure whether the debt is your responsibility, you may want to take a step back and negotiate with the debt collector.

Read on for additional information on each negotiation tactic.

Verify That It’s Your Debt

“In this day and age, it’s important to make sure we’re talking to a legitimate debt collector about a legitimate debt,” says April Kuehnhoff, staff attorney at the National Consumer Law Center in Boston.

Investigate the credibility of the caller by asking for her name, company, phone number, and business address, Kuehnhoff says. If your state licenses debt collectors, check to see whether the company is listed. If your state doesn’t, search for registration with a nearby state or head to the Nationwide Multistate Licensing System database to search for the organization.

You also have the right to ask the collector to verify the debt. Collections agencies must send a “validation letter” within five days of contacting you stating the debt amount, the creditor and what to do if you think there’s an error. You have 30 days after receiving the first written notice to send a verification letter asking for additional information about the debt. The Consumer Financial Protection Bureau offers sample letters online. If the collection agency won’t supply this information, it’s a bright red flag that something is off.

Another letter you can send is a “stop contact” or “cease” letter, which asks third-party debt collectors to stop contacting you about the debt. This will result in the collector only being able to contact you to verify that it’s stopping communications or that it’s suing you. Keep in mind, Kuehnhoff says, that a cease letter won’t erase a debt you truly owe. “If there’s a legitimate debt, it’s not going to go away,” she says.

Send these letters via certified mail and keep a copy for your records.

Understand Your Rights

As a borrower, you have rights when on the phone with a debt collector. The Fair Debt Collection Practices Act, or FDCPA, prohibits collectors from harassing or deceiving you. Here’s what a debt collector can’t do:

  • A debt collector can’t harass you or use profane language.
  • The collector can’t lie to you.
  • He or she can’t threaten to arrest or deport you.
  • A debt collector can’t call you before 8 a.m. or after 9 p.m.

When talking to a debt collector, take notes and record the time, date and with whom you spoke, says Amy Loftsgordon, foreclosure, collections and debt management editor at Nolo, a publisher of do-it-yourself legal books and software. “I would advise people to become very familiar with the FDCPA,” Loftsgordon says. If the collector is engaging in illegal behavior, “it can provide very valuable leverage” when negotiating, she says.

You can report information about harassment to the Consumer Financial Protection Bureau, Better Business Bureau or your state’s attorney general. You may be able to take this information to a consumer attorney and discuss filing a lawsuit against the collector.

Consider the Kind of Debt You Owe

When it comes to scoring better repayment terms or lower monthly payment, consider the type of debt you owe. Your options will vary depending on whether you owe medical debt, student loan debt, credit card debt or another type of consumer debt.

For example, if you incurred medical debt at a nonprofit hospital, Kuehnhoff says, you can inquire about financial assistance plans, which nonprofits must offer. If your application is approved, you may qualify for reduced payments or free care. You should also verify that your bill was appropriately submitted to your health insurer and that you’ve pursued any appeals or additional coverage through an insurance plan, worker’s compensation, auto insurance or additional coverage plans.

Similarly, if you owe federal student loans, you may be able to work with your student loan servicer to defer payments or get on an income-based repayment plan.

Offer a Lump Sum

Some debt collectors will agree to negotiate with you to score at least a partial repayment instead of nothing. Debtors may be able to negotiate an alternate repayment plan or repay a lump sum, which can be a more tempting offer. “If you can come up with a lump sum, you are much more likely to settle for pennies on the dollar,” Loftsgordon says. A debt collector may settle for around 50 percent of the bill, and Loftsgordon recommends starting negotiations low to allow the debt collector to counter.

If you are offering a lump sum or any alternative repayment arrangements, make sure you can meet those new repayment parameters. Nothing will be gained if you negotiate a new repayment schedule only to default on the revised agreement.

Mention Bankruptcy

If you have unsecured debt – meaning it’s not tied to an asset such as your car or home – mention that you’re considering filing for bankruptcy, Loftsgordon says. It may give the collector extra incentive to negotiate. Don’t use bankruptcy as a threat, but mention it if it’s truly a viable option appropriate for your situation. “It would eliminate liability for the debt, and the creditor knows it,” she says.

Speak Calmly and Logically

Debt collections calls are often designed to catch you off guard and create worry and fear. Enter the conversation as calmly and knowledgeably as possible, with an understanding of your rights as a debtor and what constitutes illegal behavior from the collector. Ask for verification and sniff out any fraudsters as you determine whether the debt is yours and what your strategy will be for repayment.

Be Mindful of the Statute of Limitations

One complication to note is the statute of limitations. If a collector is pursuing an old debt, it may have passed the time frame during which a creditor can sue you to collect. Be wary before admitting to owing or making even a small repayment on a debt that’s past the statute of limitations, as it could restart the payment clock. “You could do something that will revive that statute of limitations,” Loftsgordon says. If this situation applies, it may be worth working with an attorney to ensure that you don’t fumble this complex negotiation. Nolo provides a rough guide to the statute of limitations in all 50 states.

Negotiate How It Will Be Reported to Credit Bureaus

If you do agree to settle the debt, negotiate how the creditor will report the debt to the credit-reporting bureaus: Equifax, Experian, and TransUnion. Ask them to remove negative information and report the debt as paid in full, even if you’re paying a lower amount than owed.

Don’t rely on a verbal promise, Loftsgordon says. Instead, ask the debt collector to include this plan in writing when you’ve finalized your repayment agreement.

Get the Settlement Agreement in Writing

If you’ve negotiated any new debt repayment terms, credit-reporting perks or additional changes, get the settlement agreement sent to you in writing, Loftsgordon says. It may be sent through snail mail or a secured email. Review the terms before starting repayment.