You have decided to finally get out of debt and have gone through all of your bills to formulate a plan of action. This can be an exciting yet overwhelming time if you have several past-due obligations. Negotiating with debt collectors is intimidating but here we will show you what you are legally allowed to do to pay the minimum amount possible.
While attempting to live a debt-free life is noble, my former work as a debt collector allowed me to see the terrible things that creditors will do to keep you from paying off the balance. You name it, high-interest rates, late fees, and random fees that make zero sense, and I have seen it!
Trust But Always Document
Often, when you call in to get information regarding your account, you will be talking to someone who has worked for the company for less than a year. The debt collection industry is notorious for high turnover, so keep in mind that you may be talking to a 19-year-old kid with zero personal finance experience.
If the debt has been charged off and sold to another company, you need to ask for documentation in writing. Details such as the creditor’s name, amount owed, and interest rate should be easily obtained.
Once you have this information, you will clearly understand how much you owe to the creditor. Often, a debt collector is only worried about collecting a quick payment and moving on, so the information they provide over the phone should be taken with a grain of salt.
Companies pay debt collectors to collect dollars, plain and simple. If they spent their shift being completely open, honest, and helpful – they would collect little to no money and be fired within two weeks!
Sadly, you can’t trust all debt collectors. Document everything during a conversation. Get the debt collector’s name, employee number, and even the manager’s name. Documenting each conversation will help you stay organized and updated on how the account is progressing.
After obtaining a clear picture of how much you owe, including fees and interest, it is time to start negotiating.
How To Negotiate With A Debt Collector
If you work with a debt collection agency for small businesses, they will typically be willing to negotiate with you because they understand that something is better than nothing.
Some creditors will even offer payment plans. For example, the credit card company I previously represented offered a zero APR and waived all fees after an account was four months past due. In addition, if you paid three consecutive minimum payments in a row, they brought the account back to a current status. It was a rare plan that offered hope to past-due customers.
If you have fallen past due, ask creditors what fees they would be willing to waive. Often, interest charges are not eligible to be waived, but late fees and over the limit fees are.
For example, I have witnessed debt collectors waive over $200 in fees for only a $50 payment. Debt collectors are motivated to get payment; they aren’t worried about the bottom line of the company they represent.
Remember, “It never hurts to ask” when negotiating with a debt collector. A simple question can lead to saving hundreds of dollars!
Never Pay Over the Phone
Debt collectors will always push for payments over the phone. If you tell a collector the payment is in the mail, you can only imagine the eye roll you get.
Collectors realize that a “check by phone,” or ACH debit over the phone, is a secure and fast payment method. They will push hard to get your routing and checking account number on file.
Once you make a payment over the phone, they save your checking account information in their system.
I have heard many stories of collectors pulling payments out of checking accounts without authorization. It is 100% illegal, and any collector caught doing this would be fired on the spot. Unfortunately, debt collectors usually aren’t thinking about legalities and career advancement.
The average collector focuses on getting their next monthly bonus. But unfortunately, that temptation can lead someone with less than perfect morals to process payments without authorization.
To avoid future headaches, never pay over the phone with a collection agency.
If you notice a payment taken from your checking account without authorization, contact the collection agency and ask for the recorded phone call of the transaction. All check by phone payments should be audio recorded and saved with the file in the event of a dispute.
Should You Pay On The Balance?
It is common knowledge that the original creditor will charge off accounts and resell them to other debt collection agencies for pennies on the dollar.
Mainstream advice will tell you to negotiate settlement offers at this point. You may have heard stories of settling a $50,000 account for $2,000! Many collection agencies will be glad to settle an old debt because your credit is already damaged.
Essentially, there is very little a collection agency can do at this point to further ding your credit. If you can settle at a lower amount, the debt collection agency will update your credit bureaus showing the settled and paid-off account, but that occurs after downgrading your credit. The small benefit of paying off these old charged-off accounts is not worth the money it will cost.
After the debt is “charged off” and sold to a collection agency, your credit report will show the charge off for seven years. After seven years, the debt and charge off will fall off your credit report.
While I admire anyone who wants to pay everything owed, the end goal should be getting out of debt and rebuilding your credit. Some of these several years old accounts can go unpaid, and it will not hurt your credit further.
Remember, if you are in a hole, stop digging! The goal is to climb out of debt and move into a new phase of life that is debt and stress-free.
What Should I Offer As A Settlement Payment?
This depends on the type of debt, but most everyone will be dealing with credit card debt. If you have some accounts that are several months past due but not charged off, then you could possibly settle the bills.
For example, if you have an account that you owe $10,000 on, and the account is near being charged off and sold to another agency, creditors will sometimes take a settlement as low as 50%.
The percentage a creditor will take off the total balance will be between 25% – and 40%. If you decide to settle an account, it will show up as a settlement on your credit report, which is not the same as paying the bill.
It is better to settle an account than to allow a charge off on the account. Do not settle the account if the bill is showing a charge off. Pulling your credit report to see the account’s status in question will give you a definite answer to who owns the account.
Debt Collectors Are Human Too!
I have shared the negative stories of debt collectors, but most are honest people with morals. While debt collectors can be aggressive and rude, remember they have bad days like everyone else.
Think about a job where you are constantly told “no.” Then, as a cherry on top, you get cursed at and lied to daily.
Treating a debt collector with respect is the easiest way to make progress in negotiating on the account and getting it paid off. If a debt collector views your file and notices you have cursed out the last five coworkers, do you think they will be open and warm or closed and combative?
Keep the debt collector honest with documentation about who they are and what you discuss. Do not talk down to the collectors and make a lousy job even worse for them.
Remember, the goal is to pay as little as possible and get out of debt. So be friendly to the debt collector and allow them to help you get this balance paid off quickly.
The Hard Work Is Completed
Making a plan to get out of debt and break the cycle of being broke is a hard decision. Being in debt is a lifestyle choice, one that can be as hard to break as drinking or smoking.
Now that you have decided to become debt-free, I hope the tips above will help you avoid the tricks that professional debt collectors often play.
If you follow the tips given, you will dodge the traps and save thousands in becoming debt-free.