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Negotiating a Debt Settlement

If you’ve been hounded by a debt collection agency, you know the pressure they can exert to force you to pay every penny. What they don’t want you to know, though, is that consumers are in a perfect position to negotiate a debt settlement – often at a fraction of the outstanding balance.

Before you think about negotiating a debt settlement, though, it’s important that you establish that the debt is yours to pay. Within five days of first contacting you, the Fair Debt Collection Practices Act mandates that the collection agency send you a notice stating the name of the creditor and the amount owed. You have 30 days to dispute the debt. In order to do that, you must send them a debt dispute letter.

Once you receive documentation and verify that the debt is valid, you need to decide if in your best interest to try and work out a resolution. If you decide to work out a debt settlement, remember that some collection agencies pay pennies on the dollar for the debt, so drive a hard bargain. In addition, know that it costs money for collection agencies to hire lawyers and take you to court, so when it comes to things like credit card debt settlement, you have all of the leverage.

Look at your financial situation objectively and decide what kind of payment or payment plan you can live with. Because it’s difficult to be objective when you’re the subject of collection calls (particularly harassing collection calls), it may be helpful to consult with a friend, family member, or attorney. When deciding on a course of action and negotiating with a collection agency, here are important factors to keep in mind:

Don’t volunteer too much information. Debt collectors and law firms will try to get as much information out of you as they can. Remember to keep your information private – especially information such as your social security number and the name of your employer. Explain why you can’t pay that particular bill right now, but don’t tell them your life story. They’re not going to care – they hear from people in the same situation every day and their priority is to get you to pay no matter what.

Remember your priorities. An increasing number of people are falling behind on their bills. People have lost their jobs, their homes, and the basic necessities of life. When considering how much money you have to put toward your debt, make sure to prioritize. You must first set aside money for housing, utilities, food, and transportation. No matter how a debt collector tries to strong arm you into paying that hospital bill or credit card charge, you must take care of the basics. Everything else comes next.

Keep your cool. Negotiating with a debt collector takes a cool frame of mind. Giving in to the demands of a debt collector’s harassment may seem the only way to get him or her off your back, but in most cases, you cannot make a sound judgment while a debt collector is breathing down your neck. Understand that debt collectors are experienced in getting the most from their debtors, and they are not averse to causing you distress. In fact, causing distress is their most successful tactic.

Negotiate a lesser amount. Most debt collection agencies purchase debt at a percentage of the value of the original balance from a creditor who has already written it off as a bad debt. The debt transfer then becomes the legal property of the agency. Many debt collectors will settle for an amount less than what you owe just to be able to collect something. Some will want immediate payment in full, but bill collectors often will accept postdated checks that can be used as installment payments.

Ask for a payment plan. If a bill collector refuses to reduce the balance, then ask for a payment plan over the course of a year. Be realistic about your commitment to pay down the debt, and then keep up with your payments. If you promise to pay a certain amount on a certain date, or if you commit to pay on a schedule, don’t miss those payments, because that can lead to additional problems.

Leverage your payment plan. Ask the debt collector not to report the debt to the credit bureaus if you agree to the payment plan and keep to the payment schedule. Some charges like small medical bills may not appear, but most will. By the time your debt reached the level of a debt collection agency, it likely had already been recorded on your credit report. In case it hasn’t, try to keep it off. If it was reported, then once it’s paid, ask them to remove it or mark it “paid in full” rather than “paid in settlement” on your credit report.

Get it in writing. Once you’ve reached a payment agreement, ask for a signed letter from the debt collection agency. If your debt is sold to another agency or if your particular debt collector leaves the agency, your written agreement is all you have to prevent another round of even more annoying phone calls or worse harassment.

Keep records. Retain proof of the payments you make. Make sure to send correspondence and payments by certified mail and keep the return receipts. Once you’ve paid down your debt, get a receipt from the debt collection agency.

Call in a professional. If you can’t negotiate on your own, if the amount you owe is substantial, or if the debt collector refuses to settle, get debt settlement help from an attorney.

Keep collectors in line. Don’t give into abuse, harassment, or intimidation. If you feel the collector is crossing the line (see our resources on illegal debt collection practices), tell them that what they are doing is illegal, and that in order to collect from you, they must be civil and polite. If they persist, terminate all contact through a cease and desist letter.

If a debt collection agency is collecting on multiple debts from you or others in your household, you should know that it’s illegal for a debt collector to take a payment for one debt and apply it to another debt that’s being disputed. In other words, you get to choose where the payment is applied. It’s also in violation of the Fair Debt Collection Practices Act for a debt collection agency to deposit postdated checks earlier than the date written on the check. If the debt collector has engaged in illegal practices, contact the legal team at They’ll provide you with a free case evaluation, and will represent you free of charge if you’ve been the victim of abusive debt collection practices. Complete the form to the right or call to get help.

Lemberg & Associates’ team
of consumer attorneys is highly
skilled and ready to help you
with debt collector abuse.

If you have been the victim of harassment or illegal or unfair debt collection practices, Lemberg & Associates will discuss your options with you and protect your rights. For more information, contact Lemberg & Associates today at .

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"The FDCPA is a consumer protection statute and was intended to permit, even encourage, attorneys like Lemberg to act as private attorney generals to pursue FDCPA claims."

U.S. Ninth Circuit Court of Appeals, Evon v. Law Offices of Sidney Mickell
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