Very old accounts that other collectors have failed to collect on are typically purchased by debt buyers. This type of debt can be repeately sold because debt buyers pay very little for the debt.
According to the FTC, debt buyers often pay on average 4 cents for every $1 of debt face value. For example, a debt buyer might pay $40 to purchase a delinquent account that has a balance owed of $1,000.
That means even a small amount paid to a debt collector represents a profit.
Some debt collectors will negotiate settlements with consumers for less than the amount owed.
Here are tips to negotiate debt for pennies on the dollar:
6 Tips to Negotiate Debt Settlement
1. State a hardship.
You can certainly state that they paid pennies on the dollar for the debt but it’s really not necessary since they already know what was paid for the debt. You will be better off explaining a hardship. A job loss, divorce, illness, a decrease in pay, natural disaster…you get the point.
Explain your situation so the debt collector can understand you don’t have the money to pay the debt in full.
2. Offer a lump sum if possible.
Choose the amount you want to offer but you’ll be in a better negotiating position if you offer a lump sum to settle. If you have to make payments offer less than you can actually pay in order to still get a discount.
3. Negotiate how the unpaid portion of debt will be handled.
The debt collector could end up selling the unpaid portion of the debt to another collector or report the unpaid portion as “forgiven debt” to the IRS which may cause the IRS to send you a tax bill. The IRS considers the unpaid portion of the debt as income if the debt collector reports it. Negotiate with the debt collector not to report the unpaid portion of the debt to the IRS and delete the debt from your credit reports.
4. Approach the collection agency at the end of the month.
Some debt collectors work on commission and may be willing to negotiate in order to meet collection quotas. Every time a debt collector contacts you, they are spending money. There is a strong interest in getting you to pay as much as you can as fast as possible. Turn that interest around by offering a quick pay-off but for a decreased amount.
5. Take the emotion out of negotiations.
Don’t take anything a debt collector says to you personally. It’s just a business. Treat debt settlement like a business. Responding to snarky statements is a waste of time; they do not know you.
NEVER feel guilty or shameful about an unpaid debt. Banks, lenders, credit card issuers, and finance companies know a certain percentage of borrowers will default – life happens. Debt collectors are simply a part of that matrix.
If you’re going into debt negotiation with an uncooperative debt collector, you’ll need to be prepared to walk away. This means not making any promises you can’t keep.
6. Put everything on paper.
Don’t get caught up in the negotiations to the point you don’t get things in writing. Trust no one.
Debt collectors lie all the time to get a payment from you. Any agreement you make with a debt collector must be cemented in writing in advance of sending any money. All negotiations and conversations should be documented with good notes, dates, and times.
NEVER agree to postdate a check or agree to have automatic payments drawn from a bank account or charged to a credit card. Give the debt collector as little information as possible about your finances. DO NOT reveal your banking institution or bank account number. Payment for debts should always be in the form of a cashier’s check or money order.
Final thoughts
When entering into debt negotiation with debt collectors, you need to stay calm and remain persistent. Don’t let them scare you away by being too aggressive. But if you believe debt settlement is too difficult for you to manage on your own, debt settlement companies offer an alternative. Debt settlement companies negotiate settlements on your behalf.
Whatever amount you agree on just make sure you get the debt collector to delete the collection account in exchange for payment. You won’t be able to get the original creditor to erase the original delinquency (charged-off account) but you may be able to get the collection agency to remove the collection account.
