How do you negotiate credit card debt with collection agencies? Well, this article will explain in details how to negotiate credit card debt settlement yourself.
According to NerdWallet, the average household in America has $15,191 in outstanding debt. This explains why living under debt has become the norm for many people in America and in many other countries. So, if you are presently wallowing in a mire of debt, you are not alone—there are several thousands to millions like you.
Now, let’s face it. You will find it hard to invest and build wealth for yourself and your family if you have a huge credit card debt to settle. Before you can move forward financially, you must destroy your credit card debt.
A certain technique may help you tremendously if you are finding it difficult to pay back your debts and are on the brink of despair. It’s called credit card debt negotiation. In some cases, this technique can help you wipe as much as 75% of your credit card debt balances without you having to declare bankruptcy.
What is a Debt Collection Agency
Debt collection agencies (also known as debt collectors) are third party companies hired by credit card companies and other credit issuers to collect the debt owed to them by debtors.
Creditors typically resort to hiring debt collection agencies after taking various measures to get their money back, but without success. So, they give up collecting the debt, but they hire third party collectors if they still need the money or sell them the debt if they have given up totally.
Once a debt collection agency takes over the task of acquiring the money you owe a creditor, you will start getting constant calls, letters, or emails from representatives of that collection agency. Since the goal of the agency is to get you to pay back the money by all means, it can go as far as suing you to obtain the money.
Having debt collectors at your neck is usually not a good experience. Only few things are more frustrating than frequently receiving multiple calls, emails, and letters reminding you of your debt and even threatening you with all sorts.
If you have a debt that is being pursued by a collection agency, you can often settle it for less than the amount owed. But you can only achieve this if you know how to go about making settlements with collection agencies. The following guidelines will be of help:
How to Negotiate Credit Card Debt Settlement Yourself with Collection Agencies
1. Validate and verify the debt
Your first step towards negotiating your credit card debt is to gather information about your debt situation. A good step towards negotiating a settlement with a collection agency is to validate the agency’s claims by sending it a letter requesting that it send you proof you owe the debt. This is to ensure that you are dealing with genuine debt collectors and not fraudsters who only want to take advantage of their knowledge about your debt.
After getting a reply from the agency, you must verify that the debt is yours and accurate by ordering a copy of your credit report. The Transition report is the best, as it has complete account number. Your credit report typically shows the amount of debt you owe and gives the contact information for each creditor. You can then proceed to file a dispute with each of the three credit bureaus.
If they cannot verify that the debt is yours or correct, they must delete it from your report and notify you of the action. And in such case, simply send a copy of that notice to the collection agency, telling them to stop contacting you over the debt.
But if the debt is yours, you need to calculate how much debt you are owing in total. Make a list of the creditors or collectors holding these debts. Note the original amount of the debt as well as how much the debt started off as before fees and interest. You will need all of these information in your communication with the creditors while trying to negotiate your debt.
Organize all the information you have gathered about your debts and prepare a log that you can use to track your progress. You should have easy access to all information about your debts so you can quickly reference it in case a creditor calls you.
2. Develop a plan
Figure out how much you have gathered for settling your debts. In addition, find out how much you can afford to pay towards debts each month. You must set a budget that is realistic for you. Ideally, you will want to pay debts off at once, called “settling in full,” so plan to have certain amounts of money over time.
List out you debts starting with the most important down to the least important. However, you must bear in mind here that importance might not necessarily be related to amount. Importance actually means how urgent the debts need to be paid. Your most important debt, that is the one you should attempt paying back first—is that which you are called about the most or the one that has reached a law firm.
You should create a special account where you will save the settlement money so you don’t use it for something else. But you must bear in mind that it is best to have a decent amount of money to offer (say 30 to 50 percent) before you start settling your debts.
3. Contact the collection agency
Get in touch with the debt collection agency—most preferably by phone—and ask to speak with a manager, supervisor, or someone who is part of the agency’s decision making team.
Insist on speaking with someone that is able to make decisions such as settling the account for less than the actual amount owed and deleting the item from your credit report. If you’re not connected with such an individual within the agency, end the call and phone back until you’re connected with someone you can start negotiation talks with.
4. Switch correspondence to letters or email
Once you are able to connect with someone within the agency that you can talk to about plans to negotiate, tell them that you want all subsequent communication to be made through letters or email instead of over the phone. This is because written text can be later used as proof should any misunderstanding arise during the course of the negotiation process or even after the negotiation.
5. Start your negotiation
After the collection agency has granted your request for a negotiation, start negotiating right away. Offer a percentage of the amount you are owing in exchange for the deletion of the debt from your credit report filed with the three major credit bureaus.
Make offers for those debts for which you have something to offer them. And ensure that your offer does not exceed your budget. Try to convince the company as to why they should accept your offer and give them strong reasons why negotiation is the only option you have.
Start your offer at 25 percent of the full amount owed or less. Even if the collection agency accepts that you pay 25 percent, chances are it will still gain a substantial profit—if it bought over the debt from the creditor. This is because debt collection agencies usually buy off debts at ridiculous prices from creditors who have given up on collecting such debts back.
For example, a collection agency can buy off a $1,500 debt for just $100. So, even if you offer to pay 25 percent off such debt (that is, $375), the collection agency still gains $275 despite the huge difference between the actual amount you owed and the amount you paid eventually.
However, you must bear in mind that reality will not always go according to your plan. So, don’t expect the company to accept your negotiation offer after just one phone call. You are actually the defaulter in this case, so you have to be civil, even if your offer isn’t accepted.
While making your offer, be careful of the information you give. Telling the person that you make $100,000 a year and you want to settle a $500 debt is not the best strategy. Stress your hardship and the way in which the balance has been exaggerated. And since most creditors will begin to call you more frequently during debt negotiation talks, don’t call from nor give them number you don’t want to be called on. If they reject your starting offer, raise it gradually until you both reach an agreement.
6. Send the money and close the deal
If your negotiation offer is granted, putting the agreement in black and white is the most important debt in the whole process. Once both parties have agreed on a mutually pleasing amount, you need to make a proof of the agreement. Always insist on the company sending you the details on the agreement on their letterhead. And be sure that the agreement mentions the details of your negotiations.
Once the collection agency sends you a letter or email confirming its acceptance of your offer, make a payment of the negotiated sum either by cashier, check, or online transfer. And keep the evidence of that transaction for reference purposes. Even after the agency has confirmed your payment, be sure to follow up with it if it delays removing the negative report from the credit bureaus. Having taken all these steps, send the money and have your debt settled.
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