How to Negotiate a Settlement on Debt

Negotiating a settlement on a debt does not have to be something you dread. Most people find it frightening and put off the call or writing the letter for weeks or months or years out of fear.  Do not let the fear stop you! Creditors are well aware of the situation our country is in and the financial difficulties that millions of consumers are facing. There are entire departments set up dealing with only negotiations so realize you are not the only person who will be calling or writing and explaining your situation.

First Things First

You need to carefully analyze your budget and determine the amount of money you can pay. Resist the urge to budget more than you can pay for. You need to realize that you can only do what you can do. Got that?

If you owe $3000 on a card but the best you can pull up is $750 than you prepare to offer $750 and explain why this is the best you can do.  In fact, it can be argued that you should offer even lower so you have somewhere to move up to but this is a personal choice. Bottom line is you can only do what you can do.

It is not unusual to settle a debt for 30% of the amount owed, especially if the debt is owned but a debt collector. They, generally, purchase the debts for pennies on the dollar and even 30% is a profit.  Also, the older the debt, the easier it is to settle.  You should never agree to pay more than 70% of the debt.  A good starting point is 30-50%.  Less if it is all you can afford to pay.

It is always best to arrange for a lump sum settlement vrs payments but in some cases you must try to settle with payments.  I don’t advocate payments because if you can’t maintain them, you have reset the clock for credit reporting.

Now. Do you have your figures wrote down?  Have you carefully looked to make sure this is what you can afford and pay?

Making Contact With Creditors/Collectors

It is no secret that I do not advocate any contact with creditors or collectors via the phone. The reason is simply you have no proof of any agreement, conversation etc when you talk on the phone. You can record who you spoke with and the time of the call but the rest can become a ‘he said, she said’ argument and we all know how those go!

Mail your request if at all possible.  If you must call, check the laws in your state and see if it is legal to do a one party recording of call.  This would mean that as long as one party of the call was aware of the recording, recording the call is legal.  That ‘one’ party would be yourself.  If it is not legal, see if it is legal to record the call IF you disclose this to them.  In this case you would simply say ‘I want to inform you that I am recording this call and if you continue the conversation with me, you are ok with this recording’.

You should simply and briefly explain that you want to settle the debt; however, you are in a position that you can not pay the amount in full. I would not go into long, drawn out explanations but don’t hesitate to explain just how hard it is for you to make any payment (if this is true) and why you can only make the payment you offer.

I am writing in an attempt to settle the debt owed to you.  Unfortunately, at this time, I am unemployed. It is impossible for me to pay the debt in full but I have carefully reviewed my budget and can pay you xyz.

I realize this is not an optimal solution to resolving this debt but with my situation, this is the absolute best I can do.  I am unable to borrow money from anyone and without a job there is just no other option for me.

I am willing to mail this payment within 10 days of a response from your company, on letterhead, that you agree to settle this debt, in full for xyz.

Make whatever letter you send your own. Explain as you feel you need to but you want to get across to them that you simply can not pay more than you offered.

The Response

If you have decided to call the collector or creditor, you must be a person who feels confident in handling the back and forth banter. You may be threatened. You may be told that they can’t settle for that low of an amount and you either figure out how to pay more or you get sued etc. Be prepared for threats.  If you feel this is the direction of the call, you can politely say ‘I’m sorry we were unable to work out an agreement but I provided you with the best I was able to do-thank you for your time’.  Be prepared to end the call.  Do not take it personally!  They are doing their job. You can always call back in a few weeks or days and you will get another agent who can possibly help you.

If you have sent your request via mail, wait for your reply. Be prepared that you may not receive a reply and if you do not, simply mail another letter and state this is the second attempt I am making to settle this debt.  However; if you do receive a reply of acceptance, simply mail of a check or money order by the date you agreed to.  If you are given a counter offer, you need to realize you can re-counter the offer.   It is my opinion, that you should never settle for more than 70% of the original debt.  I would always shoot for 50% max but you will need to do what feels right for you and based on what you are able to do!

If the creditor just refuses the offer, simply wait.  Give it some time and resend a letter with your offer again. You will have a new rep handling the issue and they may be willing to accept it.

What If I’m Trying to Settle to Avoid Court?

If you are being sued and the debt is yours, first make sure the debt is within the SOL. This is very important.  Many times people are sued and settle when the lawsuit had no legal standing.  And before you think ‘oh they will win a suit so they won’t settle’ you are wrong!  Even when a judgment is entered, that doesn’t mean the creditor is going to be able to collect.  If they need to garnish wages, it costs them and it takes time. It takes manpower to do the work. They would much rather settle than proceed with the lawsuit. In cases such as this, you are likely to need to settle closer to the 70% mark for a lump sum payment.  You still do not start out that high.  Offer them low and let the negotiations build up. Again, expect resistance and expect even lies and threats.  If they reply with ‘Oh well we can garnish your wages so why should we settle’. You should calmly reply. ‘Yes, I am aware that you can but I am also aware that takes time and effort and energy and if I move or start a new job, the process is delayed.  It would be much better for you to receive a lump sum payment up front and avoid all court costs and hassles down the road’.  Even if they appear to not hear you, trust me-they do!  They will play their hard ball game anyway because it works so often!  Consumers back down far too easy.

Tips To Remember in Negotiating A Debt

NEVER expect to settle a negotiation in one attempt. It may happen and if so, that is wonderful but chances are it takes time to bat the hardball back and forth before they will give.  Their goal is to force you to give by using fear tactics. Maintain your ground and play the game and do not be afraid to say ‘I’m sorry we could not come to an agreement’.

Start your offer low-30%.  If you want to just settle in one attempt, you can offer 50% but make it clear this is the only offer you have to give and it is accept it or not.

Above all else, remember their tactics. They will lie to you and they do it every single day. They will stretch the truth and say just about anything. While some things can be true, you can bet the bulk is not. Their scare tactics work and they work everyday.

Maintain your cool. The person you are dealing with is the one who holds the power and if you blow your top and are hateful, you will not get anything at all. Be nice and polite and vent your anger after you hang up the phone.

Finally, negotiation can work. It works every single day.  You should, almost never, have to pay full amount.

If you have questions, feel free to comment and I will respond with detailed answers.

Good Luck and Negotiate, Negotiate, Negotiate!