debt collector negotiation tips

Debt Negotiation Tips: For Dealing With Debt Collectors

If you have a large amount of debt, it will be detrimental to your credit score. A low credit score will make it difficult for you to make major purchases. It could also get in the way of your ability to get good insurance rates. In fact, some employers check potential employees credit scores and base their hiring decisions on what they find. 

Fortunately, there are ways of improving your credit score. One thing you can do is negotiate with debt collectors. You may be able to work out some sort of payment plan or find a loophole that works to eliminate the unpaid debt from your report. 

If you are considering going this route, here are a few tips that will increase the likelihood that you will be successful. 

Make Sure It’s Your Debt

Before trying to negotiate, your first step should be to verify that this is a legitimate debt. 

If a debt collector is reaching out via telephone, you can start establishing credibility by asking the caller their name, company name, phone number and business address. Once you have that information, you can check local and nationwide databases to see if the company exists. 

You can also ask the debt collector to send you a validation letter to verify the debt. Once requested, companies have five days to send out the letter. If you think the debt is not valid, you will have 30 days to write back asking for additional information. 

Know Your Rights

The Fair Debt Collection Practices Act or FDCPA, enforces guidelines regarding to how a debt collector can behave when attempting to collect a debt. Here are some examples of the sort of behavior that’s prohibited: 

  • Use of profane language
  • The collector can’t lie to you
  • Use of threats of physical violence, arrest or deportation
  • Calling at inappropriate hours

If a debt collector is acting in a manner that would be considered illegal under the FDCPA, record the date and time of the phone call and make a note of who you spoke to. You can report this behavior to the Consumer Financial Protection Bureau, the Better Business Bureau, your state’s attorney general or a consumer attorney. A potential lawsuit can be used as leverage when it comes to collectors forgiving the debt you owe. 

It should also be noted that during the pandemic, many states have prohibited collectors from taking certain actions against debtors such as filing lawsuits, repossessing vehicles and garnishing wages. If a creditor is threatening to take any of these actions, you may have a case under the FDCPA.

Stay Calm

When a person is approached about a debt, it is typical for them to become anxious and worried. Creditors play on this fear to try to catch the person off guard and it may result in consumers agreeing to pay money they don’t owe. 

Avoid falling into a collector’s trap by staying calm during phone calls and by keeping your rights in mind. 

Offer a Lump Sum Payment

Debtors may reduce the amount of money they owe by offering to make a lump sum payment. 

A lump sum payment is to a creditor’s advantage because they know they will be getting money quickly and they will be guaranteed to get something as opposed to nothing. Debtors will benefit by getting out of debt paying as little as 50% of the total amount they owe. 

If you are negotiating with a creditor for a lump sum payment or any other type of reduced payment or payment plan, and you are considering bankruptcy if you don’t get out from under your debt, mention that to the collector. The collector will realize that if you file bankruptcy, they will not be able to collect their debts at all and it will make them more likely to negotiate. 

Note, bankruptcy will only apply to unsecured debts that are not tied to assets like a car or home. You will only want to use it as a bargaining tool in appropriate situations. 

Consider Financial Assistance Plans

If you owe a consumer debt like a medical debt, student loan or credit card debt, you may be eligible for a financial assistance plan. For instance, if you have an outstanding medical bill from a nonprofit hospital, you can inquire at the hospital to find out about plans they offer that may help you qualify for reduced payments or free care. 

If you owe student loans, you may be able to work with your provider to defer payments or get on an income based repayment plan. 

Look into Hardship Programs

Hardship programs can help consumers who rely on state and federal government benefits as their only source of income get debt relief. Applying for hardship programs will make that income exempt from garnishments and similar collection strategies. 

Also, if the consumer informs collectors that they rely solely on government benefits for income, the collector may voluntarily drop the debt. 

Consider the Statute of Limitations

Debtors should also consider that there is a statute of limitations that applies to every debt. A collector may be trying to collect money on a debt that is no longer legitimate due to the amount of time that has passed. 

When speaking to creditors about old debts, be careful. If you agree to make a payment on an old debt, it could revive the statute of limitations making you responsible for paying back that money. 

Before talking to a creditor, do a bit of research to find out when the debt was incurred. Then check statute of limitation laws in your state to make sure it’s valid before proceeding.

Discuss How it Will Appear on Credit Bureau Reports

If you are able to negotiate a debt, discuss how the creditor will report that debt to the credit reporting bureaus. Request that the debt be reported as paid in full even if you settle for a lower amount. 

Any agreements you make with creditors should be put in writing and sent through the mail. Make sure to review the written terms before agreeing to anything. 

If you owe creditors money, it could negatively affect your credit which could, in turn, negatively affect your quality of life. Fortunately, there are options available for getting out of debt even if you are dealing with financial hardships. Which path will you choose?