This will help protect you in case problems come up later. Pay the money. This may give you an edge in your negotiations.
If you do enter a payment plan, ask whether the creditor will lower the interest rate on the debt to ease your financial burden.
During your negotiations, maintain a written record of all your communication with a creditor. Last but not least, keep your cool and be honest. In some cases, a creditor may have turned your debt over to a debt collector. Debt collectors make money by collecting past-due debts that originated with a creditor, such as a credit card company. When dealing with debt collectors, be patient. Also, ask about whether the debt collector is willing to settle the debt through a payment plan rather than all at once, with one lump-sum payment.
DIY debt settlement negotiations almost certainly will consume a fair amount of your time and energy, and it could take a while to reach an agreement. The original creditor is likely to be looking for a higher percentage repayment. If your debt is already with a debt collector, they may be more willing to accept a lower amount. Debt settlement may hurt your credit score by more than points and the settlement will stay on your credit report for seven years.
Add this to any delinquent debt you may already have, and your credit can take a long time to recover. Debt settlement is considered a last resort strategy because of the damage it does to your credit. Other options that require you to pay back the full principal debt amount—and thus do not negatively affect your credit score—include debt consolidation and debt management plans. John Egan is a freelance writer, editor and content marketing strategist in Austin, Texas.
His work has been published by Experian, CreditCards. John earned a bachelor's degree in journalism from the University of Kansas and a master's degree in communication from Southern New Hampshire University. She has worked as a personal finance editor, writer, and content strategist covering banking, credit cards, insurance and investing.
As a small business owner and former financial advisor, Daphne has first-hand experience with the challenges individuals face in making smart financial choices. Select Region. United States. United Kingdom. John Egan, Daphne Foreman. Contributor, Editor. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
Then call the creditor and ask if you can negotiate on the debt directly with the creditor. Ideally, the creditor will immediately negotiate with you, and you'll work something out. Unfortunately, that's rare. It's more likely that the creditor will only take the debt back if you negotiate with the collection agency, establish a repayment plan, and make two or three payments under the plan.
If this happens, the creditor might eventually give you a new line of credit, helping you rebuild your credit. If the creditor does agree to negotiate with you, make sure it owns the debt. If the collection agency bought the debt from the creditor rather than the creditor just assigning the debt to the agency for collection , the agency owns the debt.
If you negotiate with and make payments to the creditor, the collector may refuse to credit you for those payments. You can negotiate a payoff of the debt in one lump sum, or perhaps you can negotiate a better payment plan. These are the same options available if you negotiated directly with the collector, although the creditor may be more flexible and willing to compromise.
Also you might want to ask to have the negative credit information on the debt removed from your credit file, or shown as payment in full, if you make the payments under the new agreement. Learn more about negotiating improvements on your credit report. Put any agreement you reach with the creditor in writing—preferably, in a letter from the creditor to you, although a letter from you to the creditor confirming the agreement and asking the creditor to correct any errors is better than nothing.
Part of the written agreement should be an acknowledgement by the creditor that it owns the debt. Send a copy of the letter to the collector. If you need help dealing with a creditor or debt collector, or would prefer someone else handle your debt negotiations, consider talking to a debt settlement lawyer.
The information provided on this site is not legal advice, does not constitute a lawyer referral service, and no attorney-client or confidential relationship is or will be formed by use of the site.
A debt in collections is one of the most damaging types of credit accounts that can appear on your reports. Occasionally, when a debt goes to collections you may be able to negotiate with the collector to accept a smaller amount than what you originally owed. An agent may decide it's worthwhile to accept partial payment now rather than go through a prolonged collection process. If you settle for a lesser amount, you and the collection agency can agree in writing that the debt will be accepted at a lower rate and be reported as "paid in full" or "paid as agreed.
However, while some collections agencies will accept your debt at a lesser amount, this option is never guaranteed. Often, a collection agency will push to collect the full balance on what you owe and you will still be responsible to pay off your debt in full. Before fulfilling any payment agreement you negotiate with a debt collector, make sure you get the terms in writing. Then, after your debt is paid off, request a written confirmation that you have settled your debt.
Occasionally, a paid debt can resurface with another agency calling to collect. Having documentation that you've already settled the debt can save you a lot of time and potential stress. First, if you're able to anticipate that you'll be unable to keep up with your debt before you actually start missing payments, reach out to your lenders and creditors and let them know about your situation. Many credit card companies and other lenders are offering additional accommodations for borrowers experiencing hardship during the pandemic.
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