How to Settle with a Debt Collector


When you have a longstanding, overdue debt with a creditor, whether it’s an unpaid credit card balance, medical bills, or anything else, at a certain point the account will likely be handed over to a debt collector.

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.

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


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


Filing for bankruptcy is a huge decision that can affect your life for years to come. While there are certainly some situations where it’s a good choice, you should put in a lot of thought and research about the benefits and consequences before making your decision.

You should also consult with a financial expert or credit counselor before you file for bankruptcy. Also, consider the type of debt you have. Student loans, for example, typically don’t go away even when you file for bankruptcy.

State exemption laws also vary depending on where you live. Those are important because they determine whether or not your personal property, such as your house or car, can be repossessed to compensate for the debt you owe.

Bankruptcies stay on your credit report for ten years, so it should always be considered a last resort. Before you even get to the possibility of a lawsuit or bankruptcy, check out the way to settle your debts so you don’t have to go down a litigious path.

Settling Your Debts

Now we know the two worst-case scenarios to avoid: lawsuits and bankruptcies. To do this, you can employ several strategies to settle your debts with debt collectors. Read each one carefully to find out which ones might work best for your personal situation.

They might take a little time and effort, but if you’re already this far down the path of debt, it’s time to take action so you can avoid more serious consequences like the ones we talked about above.

Best Type of Debt for Settling

There are two types of debt you can have: secured and unsecured. Secured debt means that personal property is associated with the money you owe, such as a house or a car.

Typically, this is not a good type of debt to settle because the creditor can simply foreclose your house or repossess the vehicle if you don’t pay.

Credit card debt, personal loans, medical bills, and other unsecured debt offers a little more wiggle room in the negotiation process. If you don’t pay or file for bankruptcy, the debt collector stands no chance of receiving any money from the debt. So it’s really in their best interest to work with you on a solution.

Debt Validation

Your very first step in settling your balance should be to send a debt validation request.

Send it as soon as you receive notice that your debt has gone to a collection agency, although you technically have 30 days to do so. Upon receiving the request, the debt collector is legally required to send you proof that they have the 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.

Statute of Limitations

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 right to take you to court to pay the money — the debt has become uncollectable.

How to Negotiate with Debt Collectors

Even if your debt is within the statute of limitations and the debt collector has verified that it does indeed own your debt, you still have several ways to negotiate. Start by offering a lump sum payment of an amount you can afford to pay for the debt.

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 debt collectors, it’s a several step process, so make sure they give in before you do.

Debt collectors 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 a completely different ballgame than working with the original creditor.

Best Practices When Settling Debts

Follow these best practices when dealing with debt collectors.

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. Also, send everything via certified mail so that you can confirm the letter was received. 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. If you do 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 do talk to someone, get their full name and any other identifying information. 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.

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

During the negotiation process, never look desperate for a debt settlement and be prepared for a lengthy process. If they realize 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.

Keep in mind 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 that dictates what shows up on your credit report and affects your credit score. Make sure they remove the item completely. Otherwise, your credit score will take a nosedive, even if it’s listed as “paid as agreed” or “paid in full.”

6. Get Everything in Writing

Once you do reach a settlement agreement, get all of 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 the Consumer Financial Protection Bureau (CFPB), Better Business Bureau (BBB), or your state’s attorney general. You may also want to consider working with an attorney, a debt settlement company, or a credit repair company.

Lauren Ward
Meet the author

Lauren is a Crediful writer whose aim is to give readers the financial tools they need to reach their own goals in life. She has written on personal finance issues for over six years and holds a Bachelor's degree in Japanese from Georgetown University.