How to Negotiate a Debt Lump Sum

Lenders view delinquent debt --- especially debt that's over 120 days late --- as bad debt and charge it off for tax purposes. This debt is then sold to a collection agency that tries to collect the debt. Unpaid debt and charge-offs leave a stain on your credit report that lasts for seven years. However, settling the debt for a percentage of the amount owed --- before or after a charge-off --- can soften the blow to your credit report and eliminate the harassing collection calls and letters.

Instructions

1

Order a copy of your credit report from all three credit bureaus (TransUnion, Experian and Equifax) to see the exact amount that the lender or collection agency reports as outstanding.

2

Calculate how much you are willing or able to pay on the debt. For example: If the debt is $2,000, you might offer to pay 50 to 75 percent of the debt.

3

Call or write the creditor or collection agency with your settlement offer. Phone calls with creditors or collection agencies are intimidating, especially if they turn down your initial settlement offer. The representative might claim that the counter-offer is the best the agency can do, though that is rarely the truth.

Collection agencies typically purchase charged-off debt for pennies on the dollar, so they are trying to maximize their profit on your debt. However, they also want you to pay the bill; the agency will not make money if you refuse a settlement deal. Stand your ground and do not agree to pay more than you can afford. Instead, end the phone call and call back; a different representative might find your settlement attractive. If that does not work, call another day and stand firm on your offer until they agree; it will happen eventually.

With letters, you may have to write back and forth until an amicable agreement is reached. The process is the same as over the phone: It is possible you will have to send letters back and forth until you reach an amicable agreement.

4

Ask for a debt-settlement agreement in writing from the creditor or collection agency. This agreement should state the settlement amount and any other terms of the agreement, like deadline for payment. Failure to meet this deadline will void the agreement.

5

Make the payment via a cashier's check or money order. Only send it through a traceable method, like certified mail with a return receipt. This gives you proof that the payment arrived at their location.

6

Review your credit report to ensure that the creditor or collection agency updates the entry to the agreed-on terms.