Negotiate a Settlement or Payment Plan with Collection Agencies, Debt Collectors, and Creditors

Negotiating payments with a collection agency does not have to be complicated. Start by carefully thinking through the situation. In many cases negotiating a payment plan or settlement offer is easier with a debt collector than it would be with the original creditor. Sometimes it helps to explain your financial situation if you are truly struggling.

It also helps to negotiate a settlement when debtors trying to repay their debt know their rights under various federal laws such as the Fair Debt Collection Practices Act, Fair Credit Reporting Act, and other similar statutes. You can also always ask questions. Most for-profit companies are willing to help you understand your repayment options. Credit card companies are also pretty good at helping you resolve credit card debt.

What happens if I don’t settle my debt

Failing to negotiate a settlement or pay off the debt can have serious negative consequences. First, the collection agency might sue you. If that happens they will add court fees and in many cases include their own attorney’s fees in the judgment against you. Their next step will usually be to garnish your wages so avoiding debt collection lawsuits is almost always a good idea.

Another consequence of failing to pay your bills is that your credit score will usually drop as a result. That makes it harder to get credit later on and increases the amounts you will pay to obtain that credit. Your creditors will often also add more in late fees, over-the-limit fees, charge higher interest rates, or even close your account if it is not already closed. Debt collectors will also add in substantial amounts for collection fees.  

How much will the collection agency take for a payment in full

Knowing debt collection agencies and debt collectors purchase debt for pennies on the dollar helps to give some insight into a bill collectors motives and may help you keep more money in your pocket. For example, if the original debt was $500, but they bought it for $100, there is probably some leeway in negotiations for a settlement for a fraction of that initial past due amount. Unfortunately, most debt collectors will want as much as 90% to 100% of the debt. Some collection agencies will take as little as 70% of the original debt or less as payment in full so start lower just in case you can get a better deal. There are collection agencies and credit card companies that will take take as little as 30% or less to settle the debt but those are rare cases.

Know the details about your debt before negotiating a settlement

Before you can negotiate a settlement or payment plan with the debt collector, you need several key pieces of information. Ask questions, pull your free credit reports, and find other documents to figure out:

  1. The true amount of the original debt
  2. The various fees, interest, and other amounts added to the debt
  3. The name and address of the original creditor
  4. The date the debt fell delinquent
  5. Whether the collection agency has paperwork to prove you owe the debt

You should not negotiate a debt settlement without this information. The statute of limitations might be expired, there might be other affirmative defenses you can assert, and there might be debt collection abuses at issue that make debt settlement a bad idea.

What repayment plans and settlement options do collection agencies accept

Repayment plans are good to offer when trying to negotiate a settlement but most creditors prefer lump sum payments when possible. Many will give you a better deal overall if you can settle your past due debt with a lump sum payment for the full amount due. Creditors and debt collection agencies want to recover as much as possible but they also want easy money rather than complications. When you need a payment plan, debt settlement can usually still be achieved but only when the collection agency gets back its initial investment plus a little more money for profits. Sometimes as little as 30% to 50% of the principal amount due is sufficient so start low and go up from there.

Never pay without a written agreement

Do not pay until you have a written agreement with the collection agency. Many debt collectors will make promises over the phone to get an immediate payment but then fail to follow through. Later, they simply deny you had any agreement. The only way to avoid that properly is to have a written agreement. Use caution however. Do not sign any agreement that requires you to waive your claims or your legal rights. You are just settling the debt, nothing else. Again, if you need help with this get a lawyer to help.  

You can negotiate a collection off your credit report

In many cases you can negotiate a collection off of your credit report. Some collection agencies can’t or won’t delete the negative account but many will. Again, its something you must negotiate for and get in writing before you can expect the debt collector to actually delete the collection from your credit reports.

Start this process by sending a pay for delete letter. When submitting your pay for delete letter be sure you make the offer to pay conditional on a deletion off your credit report. Do not promise to pay or acknowledge that you owe the debt however. Doing so restarts the statute of limitations. Use caution in what you say in your pay to delete letter and other written correspondence with the creditors and collection agencies. If the debt collection company or credit card rejects or ignores your pay for delete request, you just restarted the statute of limitations for how long a collection agency can file a lawsuit to garnish your wages.


Be sure you are prepared to follow when you negotiate a settlement or payment plan with the collection agency. Once you make that agreement in writing or make the first payment you are restarting the statute of limitations. That is a terrible thing to do to repay your debts. Also, unless you are absolutely certain you can get enough money to complete the settlement or repayment terms you don’t want to make any deals that restart the debt statute of limitations. If you fail to repay the debt collection agency will then have a lot more time to sue you, set up a wage garnishment, or seize your personal assets and bank accounts.

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