How to Negotiate With Collection Agencies

by Kevin M on June 10, 2013

in Debt Management

If you have one or more outstanding collection accounts you’re not alone. With unpaid medical balances becoming more common (higher deductibles, uncovered expenses, etc), and bankruptcy more difficult to file since the 2005 Bankruptcy Reform Act, more accounts are slipping into collection than ever. Can you learn how to negotiate with collection agencies?

You can’t make them go away – not until you pay off the accounts they’re collecting on – but you can keep them at a reasonable distance. You’ll need to do this for a while, at least until you are in a position to settle the accounts once an for all. Here are some ways to do this.

Collection Agencies: Don’t Engage Them!

Here’s a tip that will save you a lot of time and anxiety, even if it won’t make the collection agents go away entirely: don’t engage them at all! That means that you don’t accept or open any mail from them, nor do you speak with them on the phone. A collection agent’s job is to harass you into paying your debt, and they will not leave you alone until you do. Anytime you open a letter or accept a phone call, you are inviting harassment into your life. But you are under no legal obligation to do so.

You already know that you owe the debt – the collection agent’s barrage of phone calls isn’t going to make you pay it any sooner. In fact, it could very well have the opposite effect. At some point, they will almost certainly threaten you with legal action – most of which is an empty threat. But they will do it because they know that some people succumb to it.

By “getting under your skin” – and doing it constantly – collection agencies only succeed in wearing you down, sapping your ability to come up with the money to pay the bill at all.

Your job in the arrangement is to make sure that that doesn’t happen. You need to keep your head clear – and clear of the collection agent – so that you can concentrate your full efforts on saving up the money that will make them finally go away.

Don’t Talk To Them Unless You Are Ready To Settle

The only time that you should consider taking a phone call from a collection agent, or even opening up a letter from one, is when you are finally in a position to settle the account. Any discussions that you will have with them before you’re in this position will be completely meaningless.

When you are in a position to settle, you’ll need to go on the offensive. The collection agent will attempt to get every dollar out of you that he possibly can, so the threats may continue even as you attempt to settle. Ignore the threats, and familiarize yourself with the Federal Trade Commission’s Federal Debt Collection Practices Act, or FDCPA. Your knowledge of federal law will force the collection agent to behave, as their ability to collect on a debt is specifically limited by the law.

By the time you are ready to settle, you should make sure that the exchange proceeds as a negotiation between equals. Never allow yourself to be intimidated by the collection agent. If you are, the entire process will only go worse for you.

Be Ready To Make A Partial Settlement

Part of the reason why you will avoid any contact with the collection agent until you’re ready to settle is so that you can allow some time to pass between the time the collection agent gets the account and the time you actually settle.

The longer that a debt is outstanding, the more negotiable the collection agent is likely to be. This is because collection agents are essentially commissioned salesman. They don’t make any money on a collection until the account is paid (which should help you to see why they like to harass people).

If months or years pass, the collection agent is likely to greet any offer by you with enthusiasm. You can use this to your advantage and offer to settle the account for less than the full amount. If the amount of the collection is $10,000, and you have $5,000 to settle the account, you start by offering very low number, such as $2,000.

The collection agent will always scoff and declare the first offer to be “impossible“. That is part of the negotiation game, and since you are prepared to go higher you’re in an excellent position to press your case. It is entirely possible that by starting at a lowball number, you might end up settling for say $4,000, even though you are prepared to pay $5,000.

Why would the collection agent accept 50% or less of the debt? It’s the old saying, half a loaf is better than none. No where is that saying more in play than the collection business. The original creditor has already pulled out of the process – that’s why the collection agent is there in the first place. But many debts placed for collection never settle and simply go cold and disappear. Collection agents are aware this, which is why they are usually settled for less than the full amount.

Never Send Money Unless You Get An Agreement In Writing First

This point is absolutely critical – never sent any money to a collection agent unless you have a written agreement that the payment settles the account in full, or that it represents your complete understanding that an agreed-upon payment plan will in fact settle the account in full.

Don’t drop the ball on this step! Collection agents will use every tactic available – ethical or unethical – to get as much money out of you as possible. Never accept a collection agents verbal agreement as it is not legally enforceable. Have the agent email, fax or mail (preferred method) the written agreement before you send any money. The written agreement should not only spell out the terms of the settlement, but it should also specifically reference the debt in question as well as any account numbers connected with it, and be signed by the agent or his superior.

Also get an agreement from the collection agency that it will remove the collection from your credit report from all three credit repositories. You’ll want to get this agreement in writing as well, so that you can send it to the three credit repositories (Trans Union, Experian, and Equifax) in the event that the collection agency fails to do so.

Have you ever settled with a collection agency? How did work out for you?

© 2013, Kevin M. All rights reserved.

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{ 8 comments… read them below or add one }

1 DJ - MoneyforCollegePro

I actually completely DISAGREE with this advice. Maybe I am old fashioned, but if I owe a debt, I am going to pay it. As long as I can verify that the debt is legitimate, I will make every good faith effort to pay the debt. In my career I deal mainly with higher education debt, but regardless of the type of debt, it is a strain on our economy when a debt goes unpaid. If we teach people ways to get around paying their debts and skirting their responsibilities, where will we be in 10 years? I agree that not all collection agency practices are 100% truthful, but if we taught people to pay their debts in the first place, collection agencies would not even exist!


2 Matt Becker

Great advice here, particularly the part about getting everything in writing. You can also legally stop a collection agency from contacting you, which is described here:


3 Kevin@OutOfYourRut

Hi Jenny – Wow, that was slimy. But that’s the kind of work they do, so maybe he didn’t know when to turn it off.


4 David @my2centopinion

Good advice, I once had an item that went to collection. I refused to pay it because I was charged for services I had never received. They called me and I had answered the phone, I told them my grievances and they didn’t care at all. They just kept trying to negotiate with me, so I hung up. They stopped calling after about 6 months. I knew the phone number and just didn’t answer. It was a smaller company and only a couple hundred bucks. I never saw any negative effect on my credit report. That’s the most concerning thing for me.


5 Kevin@OutOfYourRut

You’re lucky, they usually are only too happy to make a big deal out of it, just to get your attention and force you to pay.

Despite your happy outcome, I would recommend that anyone do what they can to follow up on a collection (legitimate or otherwise) and either settle it or get proof you don’t owe it. These things have a way of tuning up on your credit report at the worst possible times.


6 David @my2centopinion

I was definitely worried about my credit score. Do you know how to go about proving that you didn’t order something?


7 Kevin@OutOfYourRut

Unfortunately the credit reporting agencies will accept what ever a creditor says to be the truth. You can try to get the creditor to show you the evidence of your order, but that’s a low percentage shot. Other than that hire an attorney, but if the collection is small it won’t be worth it.

You can also dispute it with the credit agencies, but that will take months and isn’t always successful.

Worst case: settle the bill for half or less of the amount they claim is owed. It will be worth a few phone calls and a $100 or so to get rid of them.

You can also ignore it since it’s small. Eventually it will fall off your credit report (7 years if you’re lucky, but they sometimes find ways to extend it).

Most people are unfamiliar with how unfair the credit reporting process can be, until something like this happens.


8 Jenny @ Frugal Guru Guide

I had a debt collection agency harassing me for a debt that I didn’t owe. I sent supporting documentation, and they agreed that I owed nothing… and in the phone call where the agent was calling me to let me know that they agreed that I didn’t owe anything, he tried again to get me to pay “because it might take time to work through the system”! Super slimy.


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