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Negotiating Debt

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Mark Cappel
UpdatedJun 17, 2024
Key Takeaways:
  • Be persistent.
  • Be honest, forthcoming, and respectful.
  • Remember how much you can afford.

How do I negotiate my delinquent collection accounts?

I am a college student with delinquent accounts from 4 years ago and want to pay off the accounts. I wanted to know the best way to approach and accomplish this. Do I call the collection agencies and tell them I want to pay off this account #? Is it possible to reduce the lump-sum payment?

You need to develop a strategy for resolving your unsecured debt, and then learn the tactics you need to work the plan.

Strategy for Negotiating Debt

There are several strategies for resolving your debt on your own, including bankruptcy, but if you want to avoid a bankruptcy on your credit report here is one strategy to consider. Debt negotiation is a process by which your lenders agree to forgive a part of your balance, saving you up to 60% of what you owe. You then pay the new agreed-upon sum. In some cases, you make monthly payments, in others you make a lump-sum payment. Aside from bankruptcy, debt negotiation is usually the fastest way to debt freedom. You can negotiate debt on your own, or hire a company to do the heavy lifting. (Visit the debt resolution savings center to get no-cost quotes from pre-screened service providers.)

Negatives of Negotiating Debt

  • Credit Impact- Debt negotiation has three down sides. The first you have already experienced so it is irrelevant to you. When a debtor defaults on their unsecured debt the creditor will report this information to the consumer credit report companies -- Experian, Equifax, and TransUnion -- and as a result this derogatory information will cause a decrease in the debtor's credit score. However, if a debtor is already late in payments or has defaulted, negotiating their debt will result in faster recovery of their credit score than doing nothing or allowing a creditor to sue the debtor and win a judgment.
  • Taxes Owed- The second down-side is a forgiveness of $600 or more is classified as taxable income. The reasoning behind the IRS's reasoning here is that the forgiven debt is imputed income. However, debtors are not be liable for this tax if they were considered insolvent at the time of the forgiveness. See Cancellation of Debt Income to learn more about this issue and how debtors resolve this issue.
  • Legal Action- The third down-side is that some creditors will refuse to negotiate unsecured debt, and instead will file a lawsuit against the debtor. The reasons for creditors taking this path vary, but usually it is because they believe the debtor has the resources to repay the debt in its entirety. However, the rate of lawsuits for debtors enrolled in debt negotiation programs is very small, but it does occur so you should be aware of the potential risk.
Quick tip

Concerned about what is appearing on your credit report now? Check your credit report today and get a free credit score instantly.

Tactics for Negotiating Debt

Read Debt Negotiation and Settlement Advice to understand the negotiation process and tips and tactics for working with collection agents. I will not repeat that entire article here, and encourage you to read it several times before you start your negotiations.

Here are several tips you might find helpful:

  1. It is common for creditors to open a debt negotiation with the line, "We do not negotiate debt, and require you to pay the balance in full." In my experience, this statement is simply untrue. I surmise the customer-center people who repeat this refrain do so because enough consumers wishing to negotiate their debt believe the statement. This opening tactic allows the creditors to extract the highest recovery from the debtor.
  2. It is also common for debtors who are negotiating with a creditor to find the creditor attempt to enroll the debtor in a "debt management plan" (DMP). A DMP is simply a plan where the creditor makes a small concession on the interest rate while requiring the debtor to repay the entire balance over time. The creditor will offer this as a "compromise," and promise the DMP will result in a lesser negative impact on the debtor's credit rating. The fact is for a creditor who has defaulted, there is no difference in a credit score between a DMP and a debt negotiation strategy.
  3. Start your negotiations with a lump-sum of 40 cents on the dollar. Some will expect that much, and others will want more. When you reach an agreement, get it in writing, and be prepared to send the creditor a check for a lump-sum settlement immediately.
  4. You may find that your original creditors have sold your account(s) to collection agents. If you do not know who owns your collection account simply get a copy of your credit report from and contact the collection agent listed for the account(s) in question. Be aware that collection agents will buy collection accounts for pennies on the dollar, so your offer of 40 cents on the dollar will offer the collection agent fair return on their investment.

I hope this information helps you Find. Learn & Save.



Dealing with debt

Mortgages, credit cards, student loans, personal loans, and auto loans are common types of debts. According to the NY Federal Reserve total household debt as of Q1 2024 was $17.69 trillion. Housing debt totaled $12.82 trillion and non-housing debt was $4.88 trillion.

A significant percentage of people in the US are struggling with monthly payments and about 26% of households in the United States have debt in collections. According to data gathered by from a sample of credit reports, the median debt in collections is $1,739. Credit card debt is prevalent and 3% have delinquent or derogatory card debt. The median debt in collections is $422.

Each state has its rate of delinquency and share of debts in collections. For example, in New Mexico credit card delinquency rate was 3%, and the median credit card debt was $400.

To maintain an excellent credit score it is vital to make timely payments. However, there are many circumstances that lead to late payments or debt in collections. The good news is that there are a lot of ways to deal with debt including debt consolidation and debt relief solutions.