Negotiate with a debt collector

Negotiating with the debt collector is sometimes the least expensive way to resolve a debt. This is because neither side has invested in court costs or spent much effort trying to collect the debt. But it requires some planning and knowledge of how debt collectors work.

Important things to know

Negotiating with a debt collector may mean that you offer to pay a portion of the debt you owe rather than the full amount. There are several situations where this may be a good option for the debt collector if they can get some of the money back and not have to pay court costs.

Knowing about some of these situations can help you figure out how to negotiate and what to propose.

The Consumer Financial Protection Bureau offers additional resources for negotiating with a debt collector.  

If you owe a debt collection company, they are likely to accept a smaller amount

You may owe a debt collection company rather than the company you originally owed money to. These types of companies often buy the debts for a much smaller amount than what you actually owe. Their goal is to collect more than they paid for the debt, cover their costs to collect the money, and make a profit. They may accept a deal if you offer a reasonable amount over what they paid for the debt, which covers their costs, and provides a reasonable profit.

You may be able to offer to pay part of the amount as a single payment

If the creditor has not yet filed a lawsuit against you, you may be able to settle by offering a single (or lump-sum) payment of a portion of what you owe. The creditor sometimes has an incentive to take this lesser amount because it removes the risk of spending time, energy, and money trying to collect later

Sometimes a debt collector is better off accepting your voluntary payment

The law prevents a debt collector from taking funds for essentials (food, clothing, basic household goods), Social Security, and disability benefits from you to pay for a judgment. If you have very little income and property, the debt collector might not be able to collect even if they win their case.

If you are in this situation, the creditor may accept your offer of a voluntary payment on a portion of your debt.

Original creditors may be motivated by tax savings

The original creditor can get tax savings of about a third of the amount of any uncollected debt. Therefore, they are more likely to settle if offered more than they can get in tax savings. 

For example, if your debt is $10,000, the debt collector can claim about $3500 for tax savings if writing off a complete loss. If you were to offer to pay more than that, they may be motivated to settle with you.

If a creditor accepts a smaller amount, you may have to report this on your taxes

You may have to pay taxes on the amount of debt that is forgiven in a negotiation. If the other side accepts an offer of more than $600 below the amount owed, the creditor will send you and the IRS a tax form identifying the amount forgiven as taxable income. Depending on your financial situation, you may have to pay income tax on this amount. 

Additional information on specific types of debts

For medical debt, it is common to negotiate to a lower amount than you were originally billed

For medical debt, creditors will typically settle for roughly the amount insurance companies pay for the same services, which is usually much lower than the amount that would be billed to an uninsured person. For example, a hospital might charge $10,000 for a procedure, but an insurance company might negotiate this rate to $2,000. If you are uninsured and owe medical debt, the creditor may settle for around this lower amount.

This information isn't public and is often difficult to find, however, if you have an itemized bill of services you can use to get a rough estimate of the insured and uninsured cost of these services.

Billing errors are common

Many medical bills contain at least some errors. These errors include double-billing, billing for services or goods not delivered, and miscategorizing services. Obtain itemized copies of your billing, if possible, and consider having an expert knowledgeable in medical billing go over it if it is at all complex.

If your insurance company did not pay

If you have medical debt because you were billed for services that your insurance company wrongly denied or did not meet its obligations under your insurance contract, you may file a cross-complaint against your insurance carrier.

Many student loans are not collected through the court. Federal loans, for example, are often collected directly by the federal government. You could be sued in court to collect a private student loan

Student loan debt may be more difficult to negotiate than other debts since this type of debt is harder to cancel (discharge) in bankruptcy. If you do decide to negotiate, here are some important things to know if your debt is from a student loan.

The amount that a student loan company will accept as a single lump-sum payment to settle the debt often ranges anywhere from 50% to 90%, depending on the company and how difficult it would be to collect from you.

If your car was repossessed or voluntarily surrendered, an auto loan company may seek to recover the portion of the loan that is not paid off by the sale of the vehicle. This amount is called a deficiency. To claim a deficiency, there are very specific notices and rules that the creditor must follow.

If the auto loan company has not repossessed the vehicle, and you have not voluntarily surrendered, it might ask the court to order that you hand over the vehicle, asking for a writ of possession. If the auto loan company seeks a writ of possession, you should seek help from an attorney, your local Self-Help center or local law library immediately.

How to negotiate with a debt collector

  • Create a settlement plan

    Before talking to the debt collector, you should create a plan.  

    1. Write down the reasons a debt collector might wish to reach an agreement.   

    For example: 

    It would be hard for the debt collector to collect. 

    • Your income is protected (“exempt”) from collection. Some types of income, such as Social Security, disability, and money needed for the basic necessities of life are protected. Learn more about exemptions. 
    • You don’t own a house or land. 
    • You owe more on your car than it is worth. 

    You can get them paid faster and with less effort. 

    • You can make a lump-sum payment. 

    • You can make monthly payments, which is easier and cheaper than a garnishment. (Please note that some debt collectors may prefer a garnishment anyway.) 

    1. Make a list of what you plan to offer.  

    Think about what you can afford to pay.  Don’t offer or agree to pay an amount that you would find difficult. You may be worse off if you end up not being able to make the payments.

    Consider costs of settlement to you.  For example, if the debt collector agrees to take less than the full amount owed, you may owe income tax on the amount that is forgiven as if you had earned the money.

  • Decide how to negotiate

    You will either negotiate by telephone or in writing.

    Each has its advantages and disadvantages. Some people are more confident talking on the phone. Others can express themselves better in writing. Choose what works best for you.

    If you negotiate over the phone, have your written plan in front of you. This helps in case you get nervous or forget your points.

  • Negotiate by proposing your offer

    Choose a time to negotiate when you are not rushed or under other stress, allowing you to think clearly.

    Whether you negotiate by telephone or in writing, stick to your plan.

    It may take several calls, e-mails, or letters to reach an agreement. It’s okay to walk away if you don’t reach an agreement. You can always try to negotiate again later.

  • If you reach an agreement

    Always get an agreement in writing. 

    If the creditor prepares the settlement agreement, read it very carefully, and be sure that you understand and agree before you sign. You can consult an attorney before signing the agreement.  

    If for some reason the creditor does not write the agreement, write a letter to the creditor saying what you each agreed to do (the terms of the agreement).


    Return to an overview of the debt lawsuit process

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