Can I Negotiate with Debt Collectors?
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If you become significantly delinquent on a credit account, it's possible the debt may wind up in collections. This means your original lender has sent your account to a collection agency, which has in turn assigned one or more collectors to contact you repeatedly in an effort to see the debt paid.
An account in collections can stay on your credit history for a long time, damaging your credit scores in the process. A debt in collections is one of the most damaging types of credit accounts that can appear on your reports.
Occasionally, when a debt goes to collections you may be able to negotiate with the collector to accept a smaller amount than what you originally owed. An agent may decide it's worthwhile to accept partial payment now rather than go through a prolonged collection process. If you settle for a lesser amount, you and the collection agency can agree in writing that the debt will be accepted at a lower rate and be reported as "paid in full" or "paid as agreed." The account will still stay on your credit history, but it may have less of a negative impact over time.
However, while some collections agencies will accept your debt at a lesser amount, this option is never guaranteed. Often, a collection agency will push to collect the full balance on what you owe and you will still be responsible to pay off your debt in full.
Payment plans and partial payments
There are a few different methods of lowering your debt that may be acceptable to a collector:
- Partial repayment. When dealing with a collection agency, start your negotiations low. Start by offering cents on every dollar you owe, say around 20 to 25 cents, then 50 cents on every dollar, then 75. The debt collector may still demand to collect the full amount that you owe, but in some cases they may also be willing to take a slightly lower amount that you propose.
- A payment plan. Spend some time laying out your monthly budget. How much money do you think you'll be able to put toward a recurring debt payment? If you had difficulty making the payments under the terms of the original creditor, you may be able to negotiate a lower monthly amount with the collector.
Get everything in writing
Before fulfilling any payment agreement you negotiate with a debt collector, make sure you get the terms in writing. Then, after your debt is paid off, request a written confirmation that you have settled your debt. Occasionally, a paid debt can resurface with another agency calling to collect. Having documentation that you've already settled the debt can save you a lot of time and potential stress.
Additional accommodations for debt during Covid-19
If you're dealing with significant debt during the Coronavirus/Covid-19 pandemic, you may have a few additional options available for relief.
First, if you're able to anticipate that you'll be unable to keep up with your debt before you actually start missing payments, reach out to your lenders and creditors and let them know about your situation. Many credit card companies and other lenders are offering additional accommodations for borrowers experiencing hardship during the pandemic. This might include allowing you to temporarily halt or lower your minimum payments or pause the interest gathering on your account.
In order to receive these accommodations, it's vital that you reach out to your lender proactively, before you begin missing payments. Additional accommodations will not begin automatically.
Lenders are unable to offer accommodations for debt that's already past due. So, if you've already missed one or more debt payments, or have a debt that's in collections, be prepared to navigate the collection process as you would normally.
You can find more information on dealing with debt during the Covid-19 pandemic via the Consumer Finance Protection Bureau.