How to Negotiate Paying Off a Debt

Negotiating with creditors or collection agencies is crucial when trying to pay down your debt. You need to know the law (both federal and your state laws) and your rights before dealing with creditors and debt collectors---and there are definite differences between them. If you're negotiating with a creditor, the debt is probably fairly recent and your chance of paying pennies on the dollar is low. Collection agencies usually deal with old debt for which they paid pennies on the dollar.

Instructions

1

Gather your credit information, including credit card bills, receipts and bank statements.

2

Get free copies of your credit reports from the three major credit bureaus. Compare the three reports and note discrepancies, both among the reports and between each report and your own documentation.

3

Organize your individual debts. You can do this a number of ways but, generally, paying off small bills first helps your credit report improve fastest. Your credit report has "x" number of black marks, and each time you pay off a debt, and especially when you have the debt removed, you are reducing the number of black marks.

4

Determine whether each debt is with the original creditor or with a collection agency. This is crucial in deciding how to negotiate, and how much you'll actually have to pay. Older debts normally are with collection agencies and, although the debt totals may be larger, the amount you might need to pay to eliminate the debt can be much lower.

5

Contact creditors first. Negotiate the best good-faith payment plan possible. You probably won't be able to reduce the principle amount owed, but you might be able to have some fees waived or negotiate a lower interest rate (there always are lower rates available and offered by competitors, so don't hesitate to suggest that you can get a better deal elsewhere).

6

Deal with debt collectors next. Again, you'll have to determine whether to pay smaller bills first or start with the oldest bills. Many collection agencies buy debt from creditors, some in enormous package deals. You can determine if the collection agency owns the debt or simply has been assigned the debt by an original creditor by calling the creditor. You can pay far less on a debt that has been bought rather than assigned, as debt collectors usually purchase debt from creditors for pennies on the dollar and only need to collect small percentages of debt to make profits. Also, collectors, unlike creditors, are regulated by the Fair Debt Collection Practices Act. Review the FDCPA to know your rights.

7

Validate the debt collector's status. This step ensures that the collector actually has a right to collect the debt claimed and that they prove to you that they are the agency of record, either through assignment or through purchasing your debt. This can be a long and sometimes frustrating procedure, but it can prove especially fruitful for old and large debts (on which you have the opportunity to pay a small percentage of the debt---sometimes 25 percent---due to the agency's eagerness to collect any amount). You also should simultaneously check with your state attorney general to determine the statute of limitations, which varies from state to state. In Michigan, for example, debt is uncollectible after six years.

8

Make offers to collection agencies on older accounts. Get all agreements in writing and keep detailed records of all verbal and written correspondence. If the debt is older than three years, offer 25 percent. Offer 50 percent on debt two to three years old. Make at least a 75 percent offer on newer debt. Avoid payment plans and make lump-sum payments, if possible. Keep any payment plan short---six months, say. Do not agree to electronic withdrawal of your funds.

9

Negotiate to have the debt removed---not marked as "Paid" or "Settled"---on your credit report. This can be part of the payment plan criteria. Follow up with the original creditor to check on your credit report status.