The best financial solutions for dealing with debt collectors depends on your situation. People who have the money to pay all or most of what they owe will have more prospects for negotiating with collectors to settle their debt. However, people who can't pay their debt in full can still try to negotiate a settlement they can afford.
Settlement
It's debatable whether a consumer should pay a debt in full that's already been sent to a collector. Some consumers note their moral obligation to pay their total debt, but others also consider the damage that's already been done to their credit files because of a debt they haven't paid. In any case, Bankrate.com notes that negotiating a settlement with a collector can prevent a lawsuit and avert further credit-report damage.
Negotiating
Examine your budget and determine what you truly can afford to pay before you contact a collection company about settling your debt. You likely won't have more room for negotiating if you promise to settle a debt for more than you can pay and then fail to meet the terms of the agreement. Settling a debt for less than you owe is counted as negative information in your credit files, but it also indicates you took some responsibility for paying your debt. A collector may agree to give you a considerable discount on what you owe in exchange for a large, lump-sum payment as opposed to a series of payments. Get any agreement you make in writing from the collection company before sending money to settle your debt.
Creditors
Sometimes debt-collection companies refuse to negotiate with people who try to settle an account for less than they owe. In such cases, contact the creditor who sent the account to collections and attempt to work out a compromise. If you're successful in your negotiations, you may have to pay more in federal income taxes. Any amount of debt that's forgiven by collectors and creditors is reported to the Internal Revenue Service as income. Nevertheless, you won't owe additional taxes if the IRS determines that you don't have the finances to pay them.
Considerations
If you don't have the means to make payments on a collection account, you can send the collector a letter stating that and request that the company stops contacting you. The U.S. Fair Debt Collection Practices Act requires collectors to cease contact with consumers after receiving a written request to do so. However, that won't prevent a lawsuit against you if a company files one. Consult with a lawyer if you're sued, and quickly reply to the suit to protect your rights. You may be able to get advice from the Legal Aid Society if you can't afford a lawyer.
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