Debt collectors purchase accounts from companies for pennies on the dollar and then pursue collecting the full amount from the people that owe the money. When dealing with debt collectors, most people are uncomfortable with negotiating, but it is one of the most important skills to develop. In most cases you can also negotiate the debt for pennies on the dollar as well, especially if you can come up with a lump sum to give them.
From 2006 to 2010 I was constantly receiving phone calls and letters from collection agencies for mistakes I had made. One agency had purchased my debt from Compass Bank and Bank of America for what I would assume at the time was a fraction of what was actually owned. Most of the time I just ignored them because I couldn’t afford to do anything. As I began to get my financial life back in order in 2010, I received another letter from the collection agency. I called the number that was listed on the letter to discuss the payments that were being offered. The monthly payment was pretty reasonable compared to what they were initially offering over the last couple of years. The problem was, I had already scheduled some debts to be paid off or had set up some payment plans, so I couldn’t offer the minimum amount they were asking for.
Beginning the Negotiations
As I spoke with the agent on the line, I informed them that I was aware of the debt and I was willing to set up a payment plan, but for lower than what they were asking for. I remember that he insisted I had to pay the minimum amount they were asking. I simply told the agent that I could pay the amount I mentioned before or nothing at all (the collection agency had already damaged my credit; so how much worse could it get). I remember the debt collector being pretty aggressive, but I was not budging. I knew my budget, so I told them they could just call me when they were ready to accept my payment I was offering. I wasn’t perfect at negotiating at first, especially dealing with someone that negotiates on a daily basis with people. Here are three quick tips to help when beginning your negotiations:
- Remember that for them it isn’t as emotional as it is for you. If you can take the emotion out of it, you will be much more successful.
- Come to the table prepared. Know what your budget will allow for, and stick to that number. If you get on the phone with a collection agency unprepared, you will most likely not succeed in your negotiations. If you can’t afford what they are requesting, tell them you can’t. If they threaten you, make sure to document the conversation.
- Always, always try to get them to agree to remove the negative items from your credit report. If they agree to remove the negative items in exchange for payment, be sure to get it in writing. If you pay without having them remove the item, it will simply state PAID on your credit report and likely won’t help you raise your credit score.
Air Force One
If you recall in the movie Air Force One with Harrison Ford, Air Force One had been hijacked by terrorists. The terrorists gave the Vice President and the Cabinet terms to “safely return” the hostages. The response had been that “We don’t negotiate with Terrorists.” I mention this, because when they finally did negotiate with the terrorists, the terrorists had exploited the weaknesses and began to ask for more since they now knew they were willing to negotiate. Keep that in mind for when the debt collectors come back willing to negotiate.
Completing the Deal
Within a couple of days, I received a call back from the debt collector. They had discussed my offer with their supervisor and were willing to accept my offer. Now that I knew they were willing to negotiate, I brought more to the table. I mentioned before that the collection agency had been reporting my debt to the credit bureaus. I told the collection agency that I would pay a lump sum, which was still considerably less than I had owed. My terms were that they were to remove both line items from my credit reports, and they would need to send me a letter or fax confirming the agreed upon terms. I received the letter by fax within a couple of hours. I made the payment and a couple weeks later, received two letters stating they had updated the records on TransUnion and Experian’s credit report. And within 45 days, both line items had been deleted from my credit reports.
Even if you aren’t comfortable at first negotiating, keep practicing. If you mess up, just hang up and call again another day. Most collection agencies have lots of employees and most likely you won’t speak with the same person. But if you follow the three steps above, and practice before you call, you will have greater success in negotiating with your debt collectors.
Question: What are some of your methods in negotiating with debt collectors? You can leave a comment by clicking here.