How to Negotiate Credit Card Debt with Collection Agencies

Negotiating with collection agencies can be a challenging task.

When your credit card company realizes you aren’t going to pay up, they sell your debt to a collector at pennies on the dollar. The collector’s goal is to recover the owed amount in full. They know this won’t happen every time, but they’re confident they can at least make their money back in most cases.

Even if you have no legal requirement to pay the debt, you may decide to for moral reasons. If that’s the case you want your payments going towards principal and not to interest. What many people don’t realize is that you can negotiate with the collection agency to lower the interest rate on your balance, helping you pay it off faster.

To negotiate successfully, follow these steps:

1. Prepare a negotiation plan: You don’t need a law degree to negotiate successfully. However, you do need a plan. Educate yourself and know your rights under the Fair Debt Collection Practices Act. Find out whether your account has passed the SOL or Statute of Limitations for your state. Knowing what the law says about debt collection practices puts you on a level playing field with the collector.

2. Calculate the amount you can pay: You need to calculate the amount you can afford to pay to the collection agency before you negotiate a settlement. The total balance and age of the account may determine the amount a collection agency will agree to accept. The debt collector may want you to make a lump sum payment, so you need to offer what you can afford to pay. You can also negotiate with the collector to set up a monthly payment.

3. Provide a settlement offer: Call the collection agency and tell them you want to settle your debt. Include in your offer the amount you can pay and any evidence of hardship that is stopping you from making full payments on the debt. Be polite but firm throughout the process. As a last resort, inform them you may be compelled to file bankruptcy. That might make their ears perk up.

If they don’t cooperate, send a certified letter detailing the terms of your offer.

4. Require the account be reported as “Paid in Full”: What you want to see on your credit report is “Paid as Agreed” or “Paid in Full” instead of “Settled.” If the collection agency reports the account as “Settled” it will adversely affect your credit report.

5. Get the terms of the agreement in writing: When the collection agency approves your offer make sure you get the terms of the agreement in writing before you submit any payment. Before signing the agreement make sure you read it completely. If the terms meet your requirements, send payment via money order. Never give a collection agency your checking account or credit card numbers.

Follow these tips to lower your interest rate, settle your balance and pay off your debt faster.

Author bio:
My name is Marie Nelson. I am a finance writer from California. I write on debt related issues as well and to post on debt relief to personal finance blogs. Click here for more information.

One thought on “How to Negotiate Credit Card Debt with Collection Agencies

  1. #5 is huge-get it in writing. In my business experience, I’ve noticed a trend away from written communication for business (on the consumer side). An email is great, as it contains a date, time and a contact name, but often it would be better to confirm those details in a return email or even via regular mail.

    If the other party insists on a telephone call only, ask for a mailing address or a fax number so that you can send a note with your understanding of what was promised to you. Send the mail return receipt requested; keep the fax receipt and then call the phone number back to ensure that your faxed communication has been scanned into your electronic records.

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