How to Negotiate Settlements With Collection Agencies

Unsecured debt, such as credit card and medical debt, that goes unpaid for long enough is likely to end up owned by a collection agency. Collection agencies purchase old debts for pennies on the dollar and then attempt to collect the full amount from the debtor -- usually with added fees. Fortunately, collection agencies are often willing to settle debts for much less than the original creditor. Because collection agencies purchase debt so cheaply, they still make a profit with a settlement. This is not the case with original creditors, for whom accepting a settlement means taking a loss.

Instructions

1

Check your state's statute of limitations (SOL) to see if the debt held by the collection agency still falls within the time frame for a lawsuit. The statute of limitations dictates how long a debt is legally enforceable. Although a collection agency may still sue for a debt on which the SOL has expired, presenting the expiration as evidence in court will result in suit being dismissed. If your only motivation for paying a collection agency is fear of a lawsuit, knowing the SOL for your state is vital.

2

Budget ahead of time to be able to offer a lump-sum payment. It's your single greatest bargaining tool when negotiating for a settlement. Debt collectors each have a quota that must be met every month. Paying in a lump sum helps the debt collector meet his quota. In return, you are more likely to pay a lower settlement and have your requests honored.

3

Call the collection agency on one of the last days of the month. This is when the debt collectors will be most eager to make a deal with you since they do not have much time left in which to meet monthly quotas. Start your negotiations lower than the amount of money you have to pay. Debt collectors are trained never to accept your first offer and to talk you up as high as they can. Beginning negotiations as low as possible allows the debt collector to come away from the transaction feeling as if he won, and allows you to come away paying no more than what you have.

4

Insist that the debt collector remove all negative information from your credit report in return for your lump sum payment. If this does not occur, your credit score will go down after your settlement is paid. The reason for this is because the more recent a debt is, the greater the impact that debt has on your credit score. By paying the settlement, you are bringing the negative account current and it will count for more than it did when you were not making payments. Collection agencies do not like to remove their negative information, but a debt collector who wants to meet his quota may override this policy for you.

5

Ask that the remaining balance of the debt not be sold to another collection agency. A common practice among debt collectors is to negotiate a settlement with a consumer and sell the unpaid balance. The consumer is then faced with yet another collection agency attempting to collect for the same debt. This practice may be unethical, but unless a written agreement exists between both parties prohibiting the practice, it is perfectly legal.

6

Get your settlement agreement in writing before you make any payments on the account. Also make certain that the agreement contains a signature. Agreements with signatures are harder to contest in court. Have the settlement agreement faxed to you to adhere to any time constraints the debt collector is working under to meet his quota. If you fail to get your agreement in writing, you can be certain that your settlement will quickly be "forgotten".