How to Accept a Settlement Offer From a Debt Collector

If you fall more than a few months behind on your debt, your original creditor may end up selling your debt to a debt collection agency. Usually, this agency will buy your debt for less than the original value, meaning it may be more willing to accept a partial payment of your debt because it will still make a profit. If you receive a settlement letter from a collection agency, you may be able to negotiate down the first price the agency offers you. When you are ready to accept an offer, you should ensure that the agreement is legally binding.

Instructions

1

Consider the source. The best scenario is if your settlement offer comes directly from the collection agency, and you will be dealing directly with the agency. Some debt settlement companies have been accused of using deceitful practices to entice debtors to settle, while collecting some or even most of the payment as settlement company fees. Whenever possible, accept only a settlement offer directly from the agency holding your debt.

2

Evaluate your budget. No matter how great an offer may seem, if you cannot afford to pay it, don't make the deal.

3

Ask for added benefits, in addition to the reduced payment. If a debt collector is willing to accept a less-than-full payment to satisfy your entire debt, it may be willing to offer you additional enticements to settle. For example, ask the collection agency to remove any negative credit information that the company has reported on your credit report in return for payment on the debt.

4

Ask for all terms of the deal in writing. Before you agree to any settlement offer, have the collection agency spell out in plain English all of the costs, benefits and terms of the deal. Specifically, make sure that the offer specifies the amount you must pay, whether you can pay over time or must pay in a lump sum, and that the agency will report the debt as "paid in full" once you agree to the deal.

5

Write an acceptance letter. Using the agency's offer as a basis, write a letter specifying the exact terms to which you are agreeing. Because the specific wording of the letter could have serious, long-term legal ramifications, you should consider consulting a collection attorney to help you with the terminology in your letter.

6

Follow up. Even if the collection agency agrees to your terms in writing, it may not follow through on its end of the bargain. Verify that your credit report is accurate after the deal concludes, and that no records exist showing that you still owe the debt you just settled.

7

Prepare to pay taxes. Generally, the IRS considers the amount of any debt you may settle to be taxable income. Although you may be able to qualify as insolvent and thereby escape taxation, for the most part you will owe tax on the amount by which the agency reduced your original debt.