Step 1: Determine Your Financial Situation
To start properly negotiating debts with a debt collector, the type of debt and your personal history with debt must be determined. In other words, find out what you owe and how much you owe. Thereafter, it’s imperative to understand your history with debt management. These two factors will help you create a solid negotiation plan that is logical and affordable.
Type of debt
There are various types of debt you might have, and the type of debt will determine the proper methods of negotiating debts with a collector. For instance, debt incurred from credit cards is vastly different from defaulted loans. Credit card debt owed to a large, national bank will have different protocols for negotiation than if debt is owed to a local bank or credit union.
Likewise, negotiating debts from an unpaid medical bill will depend on the insurance. If you have medical insurance, your unpaid bill may be partially or fully covered by your insurance. But, if the insurance company did not cover a portion of the claim, negotiating with a collector could prove difficult. Often, collection agencies are tied to contracts with insurance companies or the medical service provider which dictate whether or not a lower payoff is available.
History with debt
It is always a good idea to pay off incurred debt as quickly as possible. Typically, if you pay off debts in full and in a timely manner, a collector will be more likely to offer you the best settlement deal. If you have a consistent track record of paying off debts and your accounts are in otherwise good standing, your account is less likely to be flagged for reduction options. But, life happens. Falling behind in payments can negatively affect the final settlement. However, if you can prove that this particular bill is a “one time only” offense, collectors may be able to offer a good deal. Whereas, if you continue to incur debt and the collector sees that you have many offenses of similar debt over time, the collector is more likely to deny settlement and instead seek a full payoff.
The easiest way to assess your history with debt is by reviewing your credit report. There are many free credit reports from major credit reporting agencies which you can use to track how much debt you have.
Step 2: Assess Your Collector
When negotiating debts, more often than not, the collector will either offer or refuse a settlement deal. There are several types of collectors that you find yourself negotiating with. Contingency debt collection agencies, for example, focus on collecting debt immediately. Contingency debt collectors tend to receive a lot of unpaid accounts at one time and work diligently to collect full payoff amounts. These types of collectors are much more difficult to negotiate with because they work directly for creditors. If the collection agency is a contingency collector, chances of agreeing on a lower payoff settlement are rather unlikely.
Yet, working with a contingency collection agency may prove worthwhile if the first round of negotiations were not in your favor. Once the contingency debt collection agency receives your account and does not immediately receive payment from you, they may wait for several months for your full payment. If full payment is not received, there is a small timeframe wherein negotiations take place and result in a lower settlement. This is because the creditor can retract the account from the initial agency and send the account to another agency. Shortly before they lose your account, the initial agency may be more willing to negotiate a settlement deal with you.
Step 3: Know Your Options
As previously mentioned in Step 2, creditors have the option to work with many different agencies. If one agency is unsuccessful in obtaining payment, the creditor may transfer your account to another agency. Additionally, a creditor may sell your account, thereby changing the legal ownership of the debt. As such, negotiating debts will change as a new debt owner can offer different settlement options.
While account turnover is good in theory, the process can happen rather quickly. One agency may be in charge of your account today, but can sell the account to another agency tomorrow. Because you may be dealing with different agencies, always try to resolve a collection debt with a lump-sum payoff and get any agreement in writing.
Negotiating debts not only takes time, but also requires a logical approach to the three steps outlined above. When negotiating debts, it’s necessary to know the type of debt, amount of debt, your history with debt, the collection agency, and payoff options. Identifying, assessing, and evaluating these criteria will help you negotiate the best settlement.
Watch this video to further understand the types of debt collection agencies: