How to negotiate debt settlement Pt 1 (by a former bill collector)
For the purpose of this discussion, let's say you owe five thousand dollars to a fictional credit card company, LGI. Their in-house delinquency department tried to collect the balance from you for awhile, and have now sent your debt to a collection agency. The debt is now showing up on your credit bureau report and you want to clear it up in order to qualify for a home loan.
Right off the bat, I feel I should mention that some companies will not allow collection agencies to settle under any circumstances. Other creditors may only allow settlements of debts that are over a certain dollar amount, like five thousand dollars or more. So if your collector tells you they are not allowed to settle, chances are they are telling the truth.
In order to successfully negotiate a settlement, you need to understand the mindset of the average collector. If you call up and demand a settlement right off the bat, they will probably ask you if you pay full price for everything else in your life, and if so, why aren't you willing to pay what you owe in this instance? Some collectors compare it to going into a restaurant, eating the meal, and then demanding that the waitress give you a break because you don't want to pay the full bill. They also might ask you how you would feel if your boss couldn't manage his money and he suddenly said he only wanted to pay you fifty percent of what you've earned.
Another thing to always keep in mind is that generally speaking, the more a collector collects, the more they earn. Many collection agencies offer a base pay plus a lucrative bonus structure for those that achieve monthly goals. Doing a settlement can mean less pay as well as more work for them. Typically, settlements have to be approved by management, and there's usually papers that need to be drafted and signed. In collections, time is money, and the time a collector spends sending faxes and getting signatures could be used in working other accounts of debtors that will pay their balance in full. Some debtors erroneously think that they can make any sort of settlement offer and the collector should be glad to get any sort of money. However, the typical collector knows that the longer the debt stays on your credit report, the worse your credit rating will probably become and its in your best interest to resolve the debt as quickly as possible, either by payment in full or negotiating a settlement.
In my next post, I will go into great depth as to what to say to the collector, what not to say, and when to say it. Your conduct during your conversations with the collector can have a great bearing as to whether or not you receive the settlement you want.
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