How to Negotiate with Debt Collectors


When you have a longstanding, overdue debt with a creditor, they will likely hand over the account to a debt collector. It could be an unpaid credit card balance, medical debt, or some other kind of debt.

settling debt

You usually receive a notice in the mail that the debt is changing hands, but if you’re unsure, try calling the original creditor to find out who holds the account.

Negotiating with Debt Collectors

Many things can happen when trying to settle your debt, so it’s essential to understand your rights as well as some worst-case scenarios—and how to avoid them.

Settling Your Debts

To avoid the negative consequences of lawsuits and bankruptcies, it is essential to employ strategies for settling debts with debt collectors. Carefully consider each option below to determine the best course of action for your specific situation.

If you are currently struggling with debt, you need to take action and put in the necessary time and effort to address the issue. This can help you avoid more severe consequences, such as the ones discussed above.

Avoiding a Lawsuit

Unfortunately, when dealing with delinquent debt, either the creditor or collection agency may file a lawsuit if you refuse to pay the money you owe.

However, a debt collection lawsuit can be a lengthy and expensive process. Many debt collectors don’t think it’s worth the effort, especially if you appear savvy and demonstrate that you understand your legal rights.

Weighing Bankruptcy

Filing for bankruptcy is a significant decision that can have long-term effects on your life. It may be a viable option in certain circumstances, but you should carefully consider the pros and cons before making a decision. Make sure to do thorough research and think carefully about the potential benefits and consequences.

Before filing for bankruptcy, it’s advisable to seek the advice of a financial expert or credit counselor. These professionals can assist you in creating a debt management plan. They also provide valuable insights into the types of debt that may not be dischargeable through bankruptcy, such as student loans.

The state in which you live can impact the exemption laws that apply to your personal property, such as your house or car. These laws determine if your possessions can be seized to pay off outstanding debt. So, be aware of the specific exemption laws in your state.

Bankruptcies stay on your credit report for ten years, so it should always be considered a last resort. To avoid the need for a lawsuit or bankruptcy, try to negotiate and settle your debts before they escalate to those legal options.

Best Type of Debt for Settling

Debt can be divided into two categories: secured and unsecured. Secured debt is tied to a specific piece of personal property, such as a house or car.

If you fail to pay this type of debt, the creditor may be able to repossess the associated property. It can be more challenging to settle secured debt as compared to unsecured debt, as the creditor has more leverage in the event of non-payment.

Unsecured debts, such as credit card debt, personal loans, medical bills, may offer more flexibility in the negotiation process. If you are unable to pay or file for bankruptcy, the debt collector will not be able to recover any of the debt. As a result, they may be more willing to work with you to find a mutually beneficial resolution.

Debt Validation

Your initial step in resolving your debt should be to send a debt validation request. It’s best to send this request as soon as you are notified that your debt has been transferred to a collection agency. However, you are legally allowed up to 30 days to do so.

Upon receiving the request, the debt collector must provide you with evidence that they have the legal right to collect the debt from you.

Acceptable documents include a copy of the contract between the collection agency and the original creditor, a copy of the creditor’s original statement, or a copy of your original credit card application or loan agreement. If they can’t provide any of this information, you’re not legally required to pay them anything.

Check the Statute of Limitations in Your State

Another basic strategy for settling your debt is checking the statute of limitations in your state. After a certain point, your debt may be too old to even collect on anymore. Because the timeline varies depending on where you live, check specifically for where you live.

You’re in luck if the statute of limitations has passed because then you can inform the debt collector that they have no legal right to take you to court to pay the money. The debt has become uncollectible.

How to Negotiate a Settlement with a Debt Collector

Even if the statute of limitations on your debt has not expired and the debt collector does indeed own your debt, you still have several options available for negotiating with them. One approach is to offer a one-time lump sum payment for the debt, at an amount that you can afford.

Always make your requests in writing so you can keep records of all your communication with the debt collector. Don’t be put off if they refuse your request at first. When you negotiate with a debt collector, it’s a several step process, so make sure they give in before you do.

Debt collection agencies stand to make huge margins on the amount you owe, so don’t be afraid to offer less than 25% of what you owe. Why? Because the debt collector probably only paid 6 or 7% of your unpaid balance, so even if you offer to pay 25%, they’ll be making at least a 19% profit.

Think of it this way. Say your outstanding debt is $5,000. The debt collector paid about $300 for the privilege of collecting on it. If you offer to pay 25%, or $1,250, they still make out with $950 in profit.

The older your debt is, the less you can offer, especially if you’re inching closer towards the statute of limitations. That’s why it never hurts to start low in the negotiation process. It’s an entirely different ballgame than working with the original creditor.

Best Practices When Settling Debts

Follow these best practices when dealing with a debt collector.

1. Only Communicate with Debt Collectors in Writing & Keep Records

We already mentioned sending all communication in writing, and we can’t stress this enough. Keep detailed records of everything you send and that the debt collector sends back. Furthermore, send everything via certified mail so you can confirm the debt collector received the letter. Leave no room for the debt collector to claim you didn’t send something to them.

2. Avoid Talking to Debt Collectors on the Phone

Only talk to a debt collector on the phone if you’re confident in your abilities to stay calm. Debt collectors are known for being harsh and evoking strong emotional responses. However, if you want to give it a try and talk to someone on the phone, just remember that you can hang up at any time.

When you talk to someone, get their full name and any other identifying information. Then, take comprehensive notes so that you have records of everything that was said or agreed on. You can then send a copy of your notes to the debt collector via mail.

3. Offer a Lump Sum Payment

When negotiating a payment amount, only offer a lump sum rather than regular payments. The debt collector may try to tack on fees and interest that will make your amount owed higher than what you agreed upon.

If you don’t have enough cash on hand to make a payment or at least a partial payment, you will need to start saving up for one. You can also try to negotiate a payment plan with them and make monthly payments.

4. Be Familiar with Your State’s Laws

If the debt collector attempts to charge you fees or interest, check your state usury laws. These laws put limits on how much interest a creditor may charge.

Make sure the debt collector is in line with state law. Otherwise, it’s time to let them know that you’re aware of your rights and that the agency is violating them.

5. Be Indifferent

Never appear desperate for a debt settlement during the negotiation process and be prepared for a lengthy process. If the debt collector realizes you need to settle, they’ll have the upper hand in the negotiation process and very likely demand that you pay the full amount.

The best-case scenario is when the debt collector initiates the debt settlement process, but even if you’re the one making the first offer, stay calm and collected throughout the process.

Remember that settling your debt isn’t just about reaching an agreement on the payment. You can also negotiate how the debt is reported to the credit bureaus.

This is important because it dictates what shows up on your credit report and affects your credit score. Make sure the debt collector removes the item from your credit report completely. Otherwise, it will negatively impact your credit history. In fact, it can hurt your credit score even if it’s listed as “paid as agreed” or “paid in full.”

6. Get Everything in Writing

Once you reach a favorable settlement agreement, get all the details in writing to ensure they don’t try to change anything at the last minute. Keep a detailed list of what you’ve negotiated and ensure the contract reflects everything accurately. If not, it’s time to follow up once more.

As long as you keep diligent records and handle the debt settlement process patiently, you have good odds of only paying a fraction of your original balance.

7. Understand Your Rights

The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from harassing or deceiving you. They can’t harass you, lie to you, threaten you, or use profane language. Debt collectors also can’t call you before 8 a.m. or after 9 p.m.

Become familiar with the FDCPA as it can provide you with valuable leverage when negotiating with debt collectors. If you are being harassed, you can report it to one or more of the following:

  • Consumer Financial Protection Bureau (CFPB)
  • Federal Trade Commission (FTC)
  • Better Business Bureau (BBB)
  • Your state’s attorney general

You may also want to consider working with an attorney, a debt settlement company, or a credit repair company.

Negotiating with Debt Collectors FAQs

How can I negotiate with debt collectors?

You can negotiate with debt collectors by offering to pay a lump sum payment or by proposing a payment plan that works for your budget. You can also ask the debt collector to remove negative information from your credit report in exchange for paying off the debt.

What should I do if a debt collector is demanding more money than I can afford to pay?

If a debt collector is requesting an amount that is beyond your means, you can offer to pay a lower amount that you can realistically afford. You can also suggest a payment plan that allows you to make smaller, more manageable payments over a longer period of time.

What if I can’t pay off the debt in full?

If you’re unable to pay off the debt in full, you can still negotiate with the debt collector for a settlement. This typically involves paying a portion of the debt in exchange for the creditor agreeing to consider the debt paid in full.

What should I do if a debt collector refuses to negotiate with me?

If a debt collector is unwilling to negotiate, you can seek the help of a credit counselor or financial advisor. Alternatively, you may consider hiring a debt settlement company to handle the negotiations on your behalf. Another option is to dispute the debt if you believe it is incorrect or if the creditor cannot provide evidence of ownership.

Lauren Ward
Meet the author

Lauren is a personal finance writer who strives to equip readers with the knowledge to achieve their financial objectives. She has over a decade of experience and a Bachelor's degree in Japanese from Georgetown University.