If you have a collection account and want to settle it but can't afford to pay the full balance, you may be able to work out a more affordable payment plan with the debt collector. Even if you can't persuade the collector to accept a lower payment, you might be able to come up with a plan to pay the debt off in installments. Knowing how to deal with debt collectors will assist you in coming up with a payment solution that will allow you to permanently resolve the debt collection account.
1. Gain a better understanding of how debt collectors operate
Even the most financially responsible consumers can face debt collection. You could forget about a bill, have a disagreement with your creditor about how much you owe, or have your billing statements go missing in the mail before you realize you have a debt. Debt collectors occasionally fabricate bonus debts in order to scare consumers into paying them. Taking care of collection accounts, no matter how much you want to ignore them, in the long run, it's typically best for you and your credit score. Once you pay, the collection calls and letters will stop, your credit will improve, and you wont be at risk of being sued for the debt. Learning as much as you can about the other party, as with any negotiation, puts you in a better situation to get what you want from the transaction. The goal of a debt collector is to make as much money as possible from the debt collection process, and they accomplish this in two ways. State law allows debt collectors to charge fees on the debt. Alternatively, junk debt buyers profit from debts they bought for pennies on the dollar. Only when debtors pay their debts do collectors make money. They are unable to seize property or accept money from people's bank accounts unless they sue and get a court order and permission to garnish their wages.2. Be aware of your legal rights
Get to know your rights before speaking with a debt collector. Otherwise, debt collectors with more knowledge and experience than you can easily exploit you. Here are some things to remember: Between the hours of 8 a.m. and 9 p.m., only are debt collectors allowed to contact you. They are not allowed to bother you or speak to you in a profane manner. They can't threaten to do something that's illegal or that they won't follow through on. To obtain contact information about you, debt collectors can only contact your employer, family members, and friends. As long as the debt is paid off before the credit reporting deadline, debt collectors can start to gather from you by calling, sending letters, and listing a debt on your credit report. Note: You can ask the debt collector to stop calling or writing you by requesting that they do so. However, unless the collection is inaccurate or has passed the credit reporting time limit, you won't be able to have it removed from your credit report.3. Double-check that the debt is yours
Don't assume a debt collector contacting you is pursuing a valid debt. Debt collectors have been accused of pursuing fictitious debts or even attempting to collect on debts that have already been settled. With a healthy dose of skepticism, approach any debt collection. A debt validation notice must be sent to you by collectors within five days of contacting you. This notice specifies how much money you owe, who you owe it to, and what steps you can take if you believe there was a mistake. You have 30 days from the date you receive this notice to request that the debt collector send you proof of the debt in writing. When the collector receives your debt verification request, they are unable to collect from you until the proof you requested is sent. You can keep going with the rest of the negotiations after the collector sends the proof, and you're satisfied that the debt is legitimate. If the collector does not provide sufficient proof, send a cease and desist letter to the collector, requesting that they stop contacting you and dispute the debt with the credit bureaus.4. Get Some Effort
When negotiating with a debt collector, a few things can work in your favor. First, if the debt collector has a slimmer chance of succeeding in court, they may be more willing to accept a partial payment. The statute of limitations governs the amount of time that debt can be legally enforced. If you use the expiration of the time limit as a legal defense after the statute has passed, the debt collector will have a harder time getting a court to order you to pay the debt. Warning: If you admit to a debt or make a partial payment, you risk accidentally restarting the statute of limitations. The statute of limitations begins with your most recent activity on the account and varies by state and type of debt. The credit reporting time limit is another period that can work in your favor. This time frame has an impact on whether or not a debt can be reported on your credit report. If a debt has been removed from your credit report or is about to be removed, you have less incentive to pay it because it no longer affects your credit. However, you may be motivated to pay off the debt out of a sense of moral obligation, to permanently stop debt collectors from contacting you about the debt, or to avoid being sued. When you use an expired credit reporting time limit as leverage, the debt collector may be more willing to work with your budget. In general, the older the debt, the more likely you are to persuade the debt collector to accept a partial payment. Before you begin negotiating with the debt collector, check the statute of limitations and the credit reporting time limit.5. Figure out how much you can afford
Paying off your debt is essential, particularly if it's holding you back from establishing better credit or being approved for new credit cards or loans. Tip: Think about your other financial obligations before making a payment to the debt collector. Examine your budgeted income and expenses to determine how much you can afford to pay toward your debt. Consider whether you can pay it all at once or spread it out over a few months. Keep in mind that debt collectors will want to collect as much money as possible as quickly as possible, so delaying your payments for more than a few months is unlikely. For example, you could offer to pay a $3,000 lump sum on a $5,000 debt. You'll request that the debt collector accept your payment as full payment of the debt, canceling the remaining $2,000 owed to you. You could also propose making four $1,250 monthly payments to pay off the debt completely. Make certain you can afford to pay the price you've set. It's possible that you'll only have a small window to make the payment once the debt collector accepts. Debt settlement is the term for this procedure.6. Be aware of how your payment will impact you
Be aware of the implications of your offer. Your payment will be reported to the credit bureaus if the debt is still covered by the credit reporting window, which for the majority of debts is typically seven years. Although paying in full appears to be preferable to settling your debt, making a payment appears to be preferable to not paying at all. Any payment on the debt will reset the statute of limitations, giving the debt collector more time to file a lawsuit against you. It's critical that you reach an agreement that will satisfy the debt and eliminate the possibility of future legal action. Note: That paying off your debt may have tax consequences. If your debt is canceled for more than $600, the collector is required to report the canceled amount to the IRS. You'll receive a 1099-C form to use on your next tax return to report the canceled debt as income.7. Be on the lookout for a counteroffer
Begin by offering a payment that is less than what you want to pay. The debt collector will almost certainly counter a higher offer or even demand that you pay the full amount. The goal is to eventually persuade the debt collector to accept a payment that is equal to or less than what you've determined you can afford.8. Don't Back Down
Debt collectors will use any information they can get about you in order to collect the debt, so be careful what you say in your conversations. Maintain emotional control at all times and only talk about your offer. Discussing your income or other financial obligations is not a good idea. Keep in mind that debt collectors have access to your credit report and may use information from it, such as new loans or on-time payments on other accounts, to persuade you to pay more than you've offered. Keep your cool and stick to your guns about how much you're willing to pay. Don't let a debt collector pressure you into ignoring your other debts. It's possible that you'll have to negotiate with the debt collector several times before coming to an agreement. Don't be surprised if you speak with multiple people at the collection agency. Keep track of all of your interactions with debt collectors, noting who you spoke with and the specifics of your conversation.9. Make a written agreement
Once you and the debt collector have agreed on a payment amount that is acceptable to both of you, get the contract in writing. It is especially important if you've reached an agreement on a payment plan or a settlement amount. Make no payment until you have received written confirmation from the debt collector. Keep a copy of the contract and proof of your payments in case there is ever any doubt about whether you paid off the debt. Some people find it simpler to simply write a check for the entire balance in order to pay off the debt. It's worth the effort to negotiate a lower payment if you're looking to save money on your debt or can't afford to pay it off in full. Even if you have to start the negotiations with a letter, you can do it on your own. It is less costly than hiring a debt relief firm to represent you in negotiations.Most Commonly Asked Questions (FAQs)
What is the best way to remove collections from your credit report?
Collections will typically stay on your credit report for seven years from the date of the first missed payment. Regardless of whether you pay the account or not, the status will reflect the payment status. Unpaid collection accounts will have a greater impact on your credit score than paid collections.What is debt settlement, and how does it work?
Debt settlement is when you pay a lower amount than you owe to settle your debt. You have the ability to negotiate with creditors on your own or hire a company to negotiate on your behalf. When you operate with a debt settlement company, you must stop making payments on your debt and instead send money to the settlement company. Your credit score will suffer significantly until the debt settlement company begins settling your debt. While the company is settling, the debt, interest, and fees accumulate. Debt settlement firms charge fees.