If you can’t pay a collection agency the entire amount you owe on a
debt, you may want to try to negotiate a settlement with the collection
agency. If you are successful, you’ll pay only what you can afford, and
the collection agency will accept that amount as payment in full.
Sounds easy enough, right? But keep in mind that collection agencies are trained to get as much money as possible from consumers. After all, the more they collect, the more money they make! So negotiating an affordable settlement can be challenging if you don't know what you are doing.
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Here are answers to two of the most frequently asked questions we get about settling debts with bill collectors:
The amount you'll be able to settle for depends on a lot of different things, including:
Ultimately, if you try to settle a debt, your goal should be to settle for as much as you can afford without putting your personal finances at risk. Never agree to a settlement that you cannot afford! Otherwise, you are likely to create new financial problems for yourself. This means that before you begin negotiating with a collector it’s essential that you know exactly what you can afford to settle for.
Also, when you begin negotiating, never offer that amount right away. Keep it in the back of your mind, but always offer something less at first. Because whatever you offer, the collector is likely to counter with a higher amount so you need to give yourself some wiggle room to come back with a slightly higher offer. It may take several back and forth rounds before you and the collector reach an agreement.
Important Tip: Collection agencies are not required to accept whatever you can afford to pay on a debt. While they may have some "wiggle room" to negotiate with you, if your offer is too low, they may decide to sell the debt to a collection agency or sue to collect.
When it comes to collection agency debt settlement, the sooner you
can pay the negotiated amount the better. Although some collectors will
agree to let you pay a settlement amount over time -- maybe in a series
of two to six payments -- most of them will expect you to pay the amount
immediately in one lump sum.
For this reason, it is very important to put money aside before you begin trying to negotiate a settlement. If you cannot fund an agreement right away, a collector will probably cancel your deal. Also, the lower the settlement amount, the less likely that the debt collector will let you pay it over time.
pay a settlement amount until you have in hand a signed settlement
offer. It should spell out the terms of the deal you agreed to and
should include language stating that the debt will be considered paid in
full when your payment is received.
Sure, you can settle your own debt! The main advantage of doing it
yourself is that you will not have to pay a lot of money to a debt
settlement firm to negotiate for you, which means that you’ll have more
money to settle with. Also, although there are good settlement firms,
there are bad apples, too, and you may end up hiring one of them.
Still, it can be very helpful to get expert advice when you want to settle a debt. Here are a couple of reasons why:
You don’t know what you don’t know. For example, you don’t know how little a particular collector will probably settle for or the likelihood that it will sue you if the two of you cannot reach a settlement agreement. As a result, you could end up paying more to settle a debt than you really needed to because you did not realize that if you had held out a little longer you could probably have struck a better deal for yourself.
Your emotions can get in the way. Debt collectors are trained to get as much money as possible from consumers during settlement negotiations and the collector you deal with has probably negotiated settlements many times before. In contrast, debt settlement is probably all new to you so you are likely to feel intimidated and even a little scared, maybe because you are worried about your credit, whether you will be sued, whether you will need to file for bankruptcy, and so on.
As a result, your emotions may take over making it difficult if not impossible for you to stay “calm cool and collected” during your negotiations and so you may end up agreeing to a settlement offer that you cannot truly afford or you may say or do something to derail the negotiations.
For over 20 years we've been recommending consumers with questions about settling their debt get a free consultation with this debt expert. He's super knowledgeable and always helpful!
Find out what your options are to resolve your debts for the least amount of money, in the quickest time you are capable of achieving, and with an eye on accomplishing your future credit goals.
In as little as 15 minutes you can receive actionable feedback to:
We're confident you'll be glad you got this advice.