About Debt Negotiation

With easy access to credit cards and home equity loans, and with medical bills spiraling out of control, American consumers are in more debt than ever. Debt collectors can be extremely aggressive, using harassment and other scare tactics to get what they're owed. But there are laws in place regarding debt collection to protect debtor's rights, and also plenty of effective negotiation methods that allow debtors to stop abusive collection practices and pay off their debts.

Identification

Debt negotiation is a bargaining process where a debtor attempts to reduce the amount of their debt or the interest rate on their debt, alter or extend the payment schedule or have late fees removed from their account in order to make their debt load more manageable. This can be accomplished through either verbal or written communication with the lender.

History

The Fair Debt Collection Practice Act (FDPCA) was established in 1978 as a part of the Consumer Credit Protection Act. The FDCPA outlines a code of conduct for debt collectors that is aimed at stopping abusive debt collection practices, such as incessant or late night phone calls, phone calls to a workplace, misrepresentation of debts, the use of profane language or threats of unintended legal action. However, the FDCPA applies only to third party collectors, so debts being collected by the original lender are not subject to these rules.

Types

Negotiating with a lender can be done verbally or in writing, although written communication is preferred for verification purposes. In general, lenders like credit card companies and mortgage companies will not reduce the debt load of customers whose accounts are in good standing, although hospitals and other medical service providers often will. Credit card companies will, however, reduce customers' interest rates, so calling the company directly and asking for an interest rate reduction is the first step for every consumer. Medical care providers are usually understanding about patients' financial situations and will nearly always set up a payment plan at a low interest rate.

Considerations

Once a debt has been transferred from the original lender to a debt collection agency, there is a great deal more leeway in the negotiation process. Debt collection agencies purchase debts for pennies on the dollar, so if they can convince debtors to pay even 25 percent of their original debt, they will make a profit. When negotiating with a debt collection agency, consumers should offer very low amounts and work their way up, and be prepared to pay the agreed-upon amount immediately. Promise of immediate payment will make a debt collector much more likely to accept your offer than a payment plan.

Warning

A consumer should never send a collection agency any money without a written agreement in hand. Debt collection agencies are famous for double charging customers, disputing anything that is not in writing and denying verbal agreements, so written evidence is paramount. All correspondence should be sent certified mail, return receipt requested, so that there is a written record of everything.