How to negotiate collections

When a consumer misses payments, initially, the creditor will usually make attempts to collect the debt directly. If these efforts are unsuccessful, the creditor may decide to send the account to a collection agency. This typically occurs after the charge-off date, which is usually between 120 – 180  days after the missed payments. However, the time frame can vary depending on the creditor’s policies and the type of debt.

Once the account is with a collection agency, they will begin their debt collection process, which can include phone calls, letters, and legal action if necessary. It’s important to note that while the account is with a collection agency, it may continue to accrue interest and fees, making it more difficult for the consumer to pay off the debt.

Your payment history is the most significant factor in determining your credit score, accounting for 35% of your score. Therefore, collections can significantly impact your credit score and stay on your credit report for up to seven years. Source: Experian

To check your credit report for collections, you can request a free credit report from each of the three major credit bureaus – Equifax, Experian, and TransUnion – once a year at AnnualCreditReport.com Review your report for any accounts that have been sent to collections and verify the accuracy of the information.

If you find any errors, you can dispute them with the credit bureau, creditor, or collector.

How you negotiate with a collection agency depends on a few key factors. Firstly, it’s important to determine if the debt is assigned or owned by the collection agency. Additionally, understanding the statute of limitations (SOL) on debts in your state is crucial. Knowing these two factors can help you negotiate a payment plan or settlement that works for you.

Assigned debt: An assigned collection refers to a debt that is still owned by the original creditor but has been assigned or transferred to a collection agency to collect on their behalf. In this case, the collection agency is working as an agent of the original creditor.

Collection-owned debt: On the other hand, a collection agency-owned debt refers to a debt that has been purchased by a collection agency from the original creditor or from another collection agency. In this case, the collection agency now owns the debt.

The difference between the two is important because it can impact on how negotiations are handled. With an assigned collection, the original creditor is still interested in collecting the debt and may be willing to work with you on payment options. The account with the collection agency is likely not on your credit report at this time as that could be duplicate reporting.

With a collection agency-owned debt, the collection agency has purchased it at a discount, which will be reported on your credit report as a collection. However, since debt collectors usually purchase debts for pennies on the dollar, it’s typical to be able to negotiate a healthy settlement, which may include pay for deletions.

The statute of limitations (SOL) is a state law that limits how long a creditor or collection agency has to sue you for an unpaid debt. Once the SOL has expired, the creditor or collection agency can no longer take legal action against you to collect the debt. https://www.consumerfinance.gov/ask-cfpb/what-is-a-statute-of-limitations-on-a-debt-en-1389/

The SOL is important for debt negotiation because it can determine how you approach negotiations with a collection agency. If the debt is past the SOL, you have more leverage to negotiate a lower payment amount or settle the debt for less than the full amount owed and try to include a pay for deletion in your negotiation process.

On the other hand, if the debt is still within the SOL, you don’t have the same leverage because the collection agency can still pursue legal action against you if you don’t decide to pay the debt. In this case, you may need to negotiate a payment plan or settlement that works for both parties.

If a debt is still within the SOL I always start my negotiations at .50 on the dollar
if it’s past the SOL I always start at .30 and include a pay for deletion.

A few words of caution:

1. Nobody is obligated to settle with you at all whether it’s within or past the SOL.

2. I’m always cautious of debts that are nearing the SOL. If a collector hasn’t bothered you for all these years and you are within a couple of months of the SOL expiring, I typically will leave them alone until they “expire”, then I contact the collector. If you contact them a month or two before the expiration, it could prompt them to run to court to try and seek a judgment.

So, now that you have a basic understanding of what collections are, and how the collection process generally unfolds, let’s talk about the dispute process and/or the negotiation process.

If you feel the collection is inaccurate for any reason, the first step is disputing it with the credit bureaus. I’ll include a sample dispute letter at the bottom. If the collection is an error, 9/10 times with will solve the problem and the item should be removed from your credit report within 30 – 45 days.

If the Credit Bureau doesn’t respond, you follow up with a 30-day non-response letter.

A 30-day non-response letter to credit bureaus is a letter that you send to the credit bureaus in response to a previous dispute. Under the Fair Credit Reporting Act (FCRA) , consumers have the right to dispute inaccurate or incomplete information on their credit reports. If a consumer disputes an item on their credit report, the credit bureau must investigate the dispute and respond to the consumer within 30 days. (This is basic credit repair stuff.)

If the credit bureau does not respond within 30 days, you can send a 30-day non-response letter to the credit bureau. This letter is a written request for the credit bureau to remove the disputed item from the consumer’s credit report due to their failure to respond within the required timeframe. The letter should include a copy of the original dispute letter and any supporting documentation that was provided to the credit bureau.

It is important to note that sending a 30-day non-response letter does not guarantee that the disputed item will be removed from the consumer’s credit report.

If the collection is accurate, then your only option is to try and negotiate with the collection agency. Collectors have a reputation for being difficult, rude, and sometimes even crossing some legal lines, but in general, if you’re upfront and polite, they’ll treat you the same.

You can call or write (we prefer just calling) the collector and explain your situation. You lost a job, medical emergency, etc. just explain how your circumstances have changed but you want to take care of your responsibilities. Again, referring to the statute of limitations, offer either .50 on the dollar if it’s within the SOL, and .30 if it’s expired.

If it is expired, once you’ve come to an agreement, include the pay for deletion. Remember, no matter what the SOL status is, they’re not obligated to settle for anything less than what is owed.

Pro tip: You might find that a collector isn’t willing to agree to a pay for deletion. That’s ok, continue negotiating the debt settlement terms that are realistic for you. Once you’ve upheld your end of the bargain by paying the debt off, check your credit reports again. It’s not uncommon for there to be an error still. If that’s the case, dispute it again and you might be surprised to see the debt is removed completely.

Why? Because when you owed them money during the first dispute, they had incentive to “validate the debt ”. Now that they’ve been paid, they have no incentive and ignore the dispute. If that’s the case, the credit bureau should remove the collection from your credit report.

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