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Personal Finance

How to Negotiate With Debt Collectors

Updated Mar 01, 2022   |   5 mins read

By the close of 2017, U.S. citizens found themselves in a whopping $13 trillion worth of debt—a record-breaking sum—with the average household debt equating to somewhere just above $130,000.

The numbers may seem extreme, but for most of us, debt is a normal part of life. Many people have mortgages, credit card bills, student loans, and more. And though we typically pay those bills (hopefully on time), sometimes we don’t. They slip our minds, fall through postal service cracks, fall victim to online payment malfunctions, or exceed our available funds.

Debts that continue to go unpaid typically move to collections, landing us a negative mark on our credit scores and a slew of calls from debt collectors. When this happens, we’re often confronted with demands for payment in full. Unfortunately, meeting those demands isn’t always possible.

Once you’re on the phone with a debt collector, it may seem like your hands are tied, but in many cases, despite the strong-willed nature of debt collectors, you may be able to decrease the debt or come up with a reasonable repayment agreement. And, when armed with a few useful tips for negotiating with debt collectors, you can work towards not only settling your debt but restoring your credit.

7 Tips for Negotiating With Debt Collectors

1) Know Your Rights

Debt collectors have a job to do, and though many operate within legal bounds, some may exploit consumers, playing on their fears or lack of debt-collection knowledge. If you’re receiving calls from debt collectors, know that you have rights.

The Fair Debt Collection Practice Act (FDCPA) extends several protections to consumers. Debt collectors are not permitted to call before 8 a.m. or after 9 p.m., cannot harass you through violent, profane, or otherwise threatening language, and cannot contact you if you’ve explicitly asked them not to do so.

2) Validate the Debt

According to Mike Sullivan of Take Charge America, a non-profit credit counseling agency, this is one of the first and only things you should do upon your initial interaction with a debt collector. To do this, you can ask for debt verification, which will prove the debt is yours and that they are legally authorized to collect it. It will also verify other important information, like the age and amount of your debt.

Once you’ve asked for verification, the collector is required to send you this information within five days, and failure to do so or to say otherwise places them in violation of the FDCPA.

3) Know the Statute of Limitations

When it comes to collections, the age of your debt matters, and at a certain point, debt collectors will have a hard time using legal recourse to get you to pay up. Though the statute of limitations varies by state, according to the Consumer Financial Protection Bureau (CFPB), most states have a limitation between three to six years, though it can be longer.

If your debt exceeds the statute of limitations, then collectors who threaten or attempt to sue may be in violation of the FDCPA. However, take heed: in some states, admitting the debt is yours or making a partial payment will restart the clock and renew the debt, making tip two incredibly important.

4) Understand How Repayment Will Affect You

Before you agree to a payment, you need to understand how it fits into your current financial situation. Though you may want to pay off your debt as quickly as possible, it doesn’t make sense to agree to something outside your capabilities, putting you and your credit score in even more jeopardy. Before you agree to a payment arrangement, make sure you can fulfill it.

Further, it’s also important to consider the statute of limitations, as a partial payment will, in some cases, restart the clock, reopening legal ramifications if you fail to pay and possibly prolong the amount of time that a delinquency shows up on your credit report.

5) Negotiate a Settlement

Some debt collectors will allow you to settle your debt for less, in which case you agree to make a single lump sum payment that is lower than your total debt owed. In this case, you should come to the conversation armed with a total amount you can pay.

In some cases, settling can be beneficial, since you’ll pay less than you would if you made payments over time, but that doesn’t mean settlements are always the best answer. Paying in full typically looks better, but a settlement will be better on your credit when compared to not making a payment.

6) Stand Firm

Whether you’re negotiating a settlement or payment over time, it’s likely the collector will come back at you with a more aggressive payment strategy. Not being able to live up to your payment obligations can cause even more problems, particularly since a partial payment can renew that statute of limitations clock. Don’t let them push you into a payment arrangement that’s not manageable.

7) Get It in Writing

Never agree to a payment arrangement, whatever that may be, unless you get it in writing. Terms can change, and unfortunately, when this happens, it’s often your word against theirs. Similarly, it’s also helpful to keep your own records of conversations, payment agreements, and payments you’ve made.

No one wants to receive a call from a debt collector, but if you do, know that you do have rights. As a consumer, you always want to repay your debts, but stand firm and only enter into payment agreements that are fair and reflective of your rights and your current financial situation.