How to Negotiate with Debt Collectors (7 Best Practices)



When you have a longstanding, overdue debt with a creditor, they will likely hand over the account to a debt collector. It could be an unpaid credit card balance, medical debt, or some other kind of debt.

settling debt

You usually receive a notice in the mail that the debt is changing hands, but if you’re unsure, try calling the original creditor to find out who holds the account.

A lot of things can happen when trying to settle your debt, so it’s essential to understand your rights as well as some of the worst-case scenarios — and how to avoid them.

Avoiding a Lawsuit

Unfortunately, when dealing with delinquent debt, either the creditor or collection agency may file a lawsuit if you refuse to pay the money you owe.

However, a lawsuit can be a lengthy and expensive process. Many debt collectors don’t think it’s worth the effort, especially if you appear savvy and demonstrate that you understand your legal rights.


Filing for bankruptcy is a huge decision that can affect your life for years to come. While there are certainly some situations where it’s a good choice, you should put in a lot of thought and research about the benefits and consequences before making your decision.

You should also consult a financial expert or credit counselor before filing for bankruptcy. They can help you establish a debt management plan. Also, consider the type of debt you have. Student loans, for example, typically don’t go away even when you file for bankruptcy.

State exemption laws also vary depending on where you live. Those are important because they determine whether or not your personal property, such as your house or car, can be repossessed to compensate for the debt you owe.

Bankruptcies stay on your credit report for ten years, so it should always be considered a last resort. Before you even get to the possibility of a lawsuit or bankruptcy, attempt to settle your debts so you don’t have to go down a litigious path.

Settling Your Debts

Now we know the two worst-case scenarios to avoid: lawsuits and bankruptcies. To do this, you can employ several strategies to settle your debts with a debt collector. Read each one carefully to determine which ones work best for your situation.

They might take a little time and effort, but if you’re already this far down the path of debt, it’s time to take action so you can avoid more severe consequences like the ones we talked about above.

Best Type of Debt for Settling

There are two types of debt you can have: secured and unsecured. Secured debt means that personal property is associated with the money you owe, such as a house or a car.

Typically, this is not a good type of debt to settle because the creditor can foreclose your house or repossess the vehicle if you don’t pay.

Credit card debt, personal loans, medical bills, and other unsecured debt offer a little more wiggle room in the negotiation process. If you don’t pay or file for bankruptcy, the debt collector stands no chance of receiving any money from the debt. So it’s really in their best interest to work with you on a solution.

Debt Validation

Your very first step in settling your balance should be to send a debt validation request.

Send it as soon as you receive notice that your debt has gone to a collection agency, although you technically have 30 days to do so. Upon receiving the request, the debt collector is legally required to send you proof that they have the right to collect the debt from you.

Acceptable documents include a copy of the contract between the collection agency and the original creditor, a copy of the creditor’s original statement, or a copy of your original credit card application or loan agreement. If they can’t provide any of this information, you’re not legally required to pay them anything.

Check the Statute of Limitations in Your State

Another basic strategy for settling your debt is checking the statute of limitations in your state. After a certain point, your debt may be too old to even collect on anymore. Because the timeline varies depending on where you live, check specifically for where you live.

You’re in luck if the statute of limitations has passed because then you can inform the debt collector that they have no right to take you to court to pay the money — the debt has become uncollectable.

How to Negotiate a Settlement with a Debt Collector

Even if your debt is within the statute of limitations and the debt collector has verified that it does indeed own your debt, you still have several ways to negotiate. Start by offering a single lump sum payment of an amount you can afford to pay for the debt.

Always make your requests in writing so you can keep records of all your communication with the debt collector. Don’t be put off if they refuse your request at first. When you negotiate with a debt collector, it’s a several step process, so make sure they give in before you do.

Debt collection agencies stand to make huge margins on the amount you owe, so don’t be afraid to offer less than 25% of what you owe. Why? Because the debt collector probably only paid 6 or 7% of your unpaid balance, so even if you offer to pay 25%, they’ll be making at least a 19% profit.

Think of it this way. Say your outstanding debt is $5,000. The debt collector paid about $300 for the privilege of collecting on it. If you offer to pay 25%, or $1,250, they still make out with $950 in profit.

The older your debt is, the less you can offer, especially if you’re inching closer towards the statute of limitations. That’s why it never hurts to start low in the negotiation process — it’s a completely different ballgame than working with the original creditor.

Best Practices When Settling Debts

Follow these best practices when dealing with a debt collector.

1. Only Communicate with Debt Collectors in Writing & Keep Records

We already mentioned sending all communication in writing, and we can’t stress this enough. Keep detailed records of everything you send and that the debt collector sends back. Also, send everything via certified mail so you can confirm the debt collector received the letter. Leave no room for the debt collector to claim you didn’t send something to them.

2. Avoid Talking to Debt Collectors on the Phone

Only talk to a debt collector on the phone if you’re confident in your abilities to stay calm. Debt collectors are known for being harsh and evoking strong emotional responses. However, if you want to give it a try and talk to someone on the phone, just remember that you can hang up at any time.

When you talk to someone, get their full name and any other identifying information. Then, take comprehensive notes so that you have records of everything that was said or agreed on. You can then send a copy of your notes to the debt collector via mail.

3. Offer a Lump Sum Payment

When negotiating a payment amount, only offer a lump sum rather than regular payments. The debt collector may try to tack on fees and interest that will make your amount owed higher than what you agreed upon.

If you don’t have enough cash on hand to make a payment or at least a partial payment, you will need to start saving up for one. You can also try to negotiate a payment plan with them and make monthly payments.

4. Be Familiar with Your State’s Laws

If the debt collector attempts to charge you fees or interest, check your state usury laws. These laws put limits on how much interest a creditor may charge.

Make sure the debt collector is in line with state law. Otherwise, it’s time to let them know that you’re aware of your rights and that the agency is violating them.

5. Be Indifferent

Never appear desperate for a debt settlement during the negotiation process and be prepared for a lengthy process. If the debt collector realizes you need to settle, they’ll have the upper hand in the negotiation process and very likely demand that you pay the full amount.

The best-case scenario is when the debt collector initiates the debt settlement process, but even if you’re the one making the first offer, stay calm and collected throughout the process.

Remember that settling your debt isn’t just about reaching an agreement on the payment. You can also negotiate how the debt is reported to the credit bureaus.

This is important because it dictates what shows up on your credit report and affects your credit score. Make sure the debt collector removes the item from your credit report completely. Otherwise, it will negatively impact your credit history. In fact, it can hurt your credit score even if it’s listed as “paid as agreed” or “paid in full.”

6. Get Everything in Writing

Once you reach a favorable settlement agreement, get all the details in writing to ensure they don’t try to change anything at the last minute. Keep a detailed list of what you’ve negotiated and ensure the contract reflects everything accurately. If not, it’s time to follow up once more.

As long as you keep diligent records and handle the debt settlement process patiently, you have good odds of only paying a fraction of your original balance.

7. Understand Your Rights

The Fair Debt Collection Practices Act (FDCPA) prohibits debt collectors from harassing or deceiving you. They can’t harass you, lie to you, threaten you, or use profane language. Debt collectors also can’t call you before 8 a.m. or after 9 p.m.

Become familiar with the FDCPA as it can provide you with valuable leverage when negotiating with debt collectors. If you are being harassed, you can report it to one or more of the following:

  • Consumer Financial Protection Bureau (CFPB)
  • Federal Trade Commission (FTC)
  • Better Business Bureau (BBB)
  • Your state’s attorney general

You may also want to consider working with an attorney, a debt settlement company, or a credit repair company.