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5 Solid Steps for Negotiating With Debt Collectors

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In a Nutshell

If your debt has been turned over to a debt collection agency, negotiating with that debt collector may seem intimidating. But in many cases, negotiating with creditors or lenders isn’t as hard as you may think. To successfully negotiate a debt settlement agreement: - Verify the debt and debt collector - Know your rights - Review your finances and develop a plan - Start negotiating the settlement and be prepared for counteroffers - Get the agreement in writing

Written by the Upsolve TeamLegally reviewed by Attorney Andrea Wimmer
Updated August 25, 2023

Step 1: Make Sure the Debt and the Debt Collector Are Legitimate

Unfortunately, debt collection scams have become increasingly common. So before you start negotiating with a debt collector, always make sure that both the debt and the collection agency are legitimate. 

How To Verify the Debt Collector Is Legitimate

First, verify the debt collector or debt collection agency. Request the company’s full name, business address, and phone number. If they refuse to give you this information, this is a red flag it may be a scam. 

You can also run a free credit report to see which collection agency is listed for the debt. If the collection agency on the report doesn’t match what you’re being told on the phone or if you’re skeptical about the debt collector, you can also contact the original creditor to verify who they sold the debt to.

How To Validate a Debt in Collections

Next, ask the debt collector to validate the debt. By law, the debt collector must send you a debt validation notice within five days after first contacting you. This is laid out in the federal Fair Debt Collection Practices Act (FDCPA) along with other legal requirements for third-party collection agencies.

The validation notice should include:

  • A statement that the notice is from a debt collector

  • The debt collection company’s name and mailing address

  • The name of the previous and/or original creditor, if applicable

  • The account number for the debt (if any)

  • The amount of debt you owe, including any interest and/or fees

  • Notice that you have 30 days to dispute the debt, including the ending date for the 30-day period

  • Instructions about how to dispute the debt and a “tear off” form that you can complete and send back to the debt collector to dispute the debt or request more information

If the notice doesn’t have enough information for you to verify the debt, you can write a debt verification letter requesting further information.

If you aren’t sure about the amount of the debt, the original creditor, or the debt collector or debt collection agency, then you should request verification of all of these items. If you do this within 30 days of receiving validation information, the debt collector must verify the debt and send you written confirmation of it. They also have to stop all contact and collection activities until they have done so.

There’s one final thing to look out for: Is the debt an old debt? If the debt is past the statute of limitations, this can change your debt settlement strategy. If it’s an old debt, you can’t be sued for it. That limits the debt collector’s power and gives you the upper hand. So be sure to check this as part of the verification process. Learn more in our article: What Is the Statute of Limitations for Debt?

Step 2: Know Your Rights When Dealing With a Collection Agency

Dealing with debt collectors can be stressful. It may feel easier to do if you empower yourself first by knowing your rights under the Fair Debt Collection Practices Act (FDCPA). This law was created to protect consumers from harassment and abusive collection practices. 

The FDCPA only applies to third-party debt collectors and collection agencies, not to the original creditor. It also only covers consumer debts like credit card debt and medical bills. It doesn’t apply to business debts.

Read our article When Debt Collectors Break The Law: FDCPA Violations to learn more about your rights and how to protect yourself. Don’t hesitate to report debt collectors who violate your rights. You can file a complaint online with the Consumer Financial Protection Bureau (CFPB) if this happens.

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Step 3: Review Your Finances & Develop a Plan To Repay the Debt

To negotiate your debt with a debt collector, you’ll need to know how much you can afford to pay. If you have a debt that’s been sent to collections, it’s most likely because you haven’t had the means to repay the full debt. 

At this point, many people choose to reach out for help and support from a nonprofit credit counseling agency. Credit counselors offer free consultations. They can help you put together a personal budget, get your financial situation back on track, and understand your debt relief options, including debt consolidation, a debt management plan, debt settlement, or bankruptcy.

The Pros and Cons of a Debt Settlement Agreement

Debt settlement is one of several potential debt relief options. It works well for some people, but to make sure it’s the right choice for you, consider some pros and cons.

The biggest advantage of debt settlement is that you end up paying less than the full amount you owe on the debt. The rest is forgiven and that debt is resolved. Having a resolution like this takes the stress out of a very stressful situation.

There are several potential drawbacks to debt settlement, too, such as:

  • A negative effect on your credit score: The debt collector will likely report the settlement to the credit reporting agencies (Experian, Equifax, and TransUnion), which can hurt your credit score

  • The difficulty of coming up with a lump-sum payment: If you’re wondering where you’ll get the money to do this, you’re not alone! But if you come into even a small windfall from a tax return, inheritance, or by other means, debt settlement may be a good way to use those funds. 

    • You can also ask the debt collector if they’re willing to do a monthly payment plan, but if you have a history of missed payments, this may be a tough sell.

  • Some types of debt can’t be settled: You can usually try to negotiate credit card debt, medical bills, and even tax debt, but student loans usually aren’t approved for debt settlement. That said, there are ways to get student loan forgiveness or otherwise handle overwhelming student loan debt.

  • There may be tax consequences for a debt settlement: If the debt collector forgives $600 or more of your debt, this will be classified as ordinary income on your tax return, which means it’s taxable.

Step 4: Start Negotiating the Debt Settlement Agreement

After reviewing your personal finances and debt relief options, if you decide debt settlement is right for you, it’s time to start negotiating. 

Before you begin, know your terms. There are three things to negotiate in debt settlement:

  • How much of the total amount you’re willing and able to pay (the settlement amount).

  • How you will repay the debt (as a lump sum or in installments over a period of time). If you offer a repayment plan, know what monthly payment you can afford and how long it will take to repay the settled debt.

  • How the debt collector will report the account to the credit bureaus (paid in full, partial payment, settled). Having the account reported as “paid in full” after the settlement will be the best for your credit score. You may also be able to negotiate having negative information removed from your credit report (such as missed or late payments or account delinquency/default).

Know both your best-case scenario and the absolute minimum you can settle for going in. It helps to write a few scenarios down. 

You’ll probably get several phone calls from the debt collector, and you can negotiate on one of these calls. But it may be easier to write a debt settlement offer letter. We created a template you can use to get started. If you do any negotiating on the phone, be sure to document who you talked to, the date and time, what you talked about, and any agreements you came to.

Tips To Negotiate a Debt Settlement Agreement

  • Only start negotiating after you know and feel confident about how much you can afford to repay.

  • Stay calm and professional. Lay out your financial situation logically to your debt collector. This may convince them that negotiating is in their best interest.

  • Don’t let debt collectors pressure you into a plan that you aren’t comfortable with. Agreeing to a plan then defaulting on it only delays the inevitable, and it will hurt your credit report more in the long run. 

  • Start with a low offer and be ready for a counter-offer from the debt collector. You could start as low as 10%, but you’ll likely settle on paying somewhere between 30% and 60% of the total amount you owed.

Remember there’s no guarantee that a debt collector will agree to any settlement plan that is different from the original terms of your account contract. But most debt collectors would rather get something instead of nothing. A partial payment is better than nothing at all. 

Do You Need To Hire a Debt Settlement Company?

Negotiating a debt settlement agreement may feel intimidating. You can hire a debt settlement company to help you, but remember that these companies can’t do anything for you that you can’t do yourself

They also charge for their services. If you can afford to hire a company and don't want to negotiate on your own, consider it, but watch out for scammers. If you can’t afford to hire someone, remember you can negotiate a debt settlement agreement on your own for free. 

Step 5: Get the Settlement Agreement in Writing

If you have reached an agreement with a debt collector or debt collection agency, be sure to get all of the settlement or payment terms in writing before you make a payment. 

In addition to the settlement amount and payment terms, the agreement should also state how the debt collector will report your debt to the credit bureaus. Remember, you can negotiate this as part of your agreement. Do your best to get or keep negative information off of your credit report. 

Once you get all of this in writing, go over it carefully to make sure that the debt collector has kept all of their promises to you. If they didn’t, go back to them and insist that they keep their end of the bargain, or else you won’t pay them. They will likely back down, so don’t be afraid to stick firmly to your terms here. 

Let’s Summarize...

Although it may seem like a daunting proposition, you really can negotiate directly with your creditors by yourself. Just be sure that you know your own rights and the creditor’s rights. 

Try to establish a workable plan that is acceptable for both of you. You may need to go back and create a comprehensive budget in order to find out how much you can afford to pay, but this is a good thing to do anyway. You can seek help from a nonprofit credit counselor, a financial planner, or a debt settlement company if you feel uncomfortable pursuing this process on your own. 

Written By:

The Upsolve Team

Upsolve is fortunate to have a remarkable team of bankruptcy attorneys, as well as finance and consumer rights professionals, as contributing writers to help us keep our content up to date, informative, and helpful to everyone.

Attorney Andrea Wimmer


Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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