Whether you’ve suffered recent financial setbacks or merely overlooked a bill, having an account in collections can quickly become a nightmare. You could face everything from an annoying barrage of collection calls to frozen bank accounts and wage garnishment. Making arrangements to pay off your collection accounts now can save you from facing far greater problems in the future.
Evaluate Disposable Income and Payment Potential
Before you contact the collection agency with an offer, establish just how much financial freedom you have to pay off the debt. If you can afford to pay off the full amount in a lump sum and are willing to do so, evaluating your finances isn’t necessary. Unfortunately, most debtors don’t have this ability.
Review your budget and look for places you can cut corners. For example, if you spend seven dollars a day on a fast food lunch, bringing your lunch to work can save you over a hundred dollars a month. Every dollar of disposable income you don’t spend is another dollar you can devote to absolving your debt problem. Reviewing your budget and comparing your expenses to your income helps you get a clearer picture of how much you can reasonably afford to put toward paying your collections each month.
Negotiating Partial Payments on Collections
Contact the collection agency and ask the representative you speak with how much you need to pay each month to resolve the debt. Even if the company wants more each month than you can afford, collectors also know that a little bit of money is better than none at all.
Your monthly payments are negotiable. If you can’t reach a consensus with the collector you’re speaking with, hang up and call the company again. Unless your account is held by a local collection agency with limited staff, it’s unlikely you’ll speak to the same person when you call a second time. Continue attempting to negotiate until you find a representative that’s willing to work with you and will structure payments to fit your income.
Lump Sum Settlements
Some collectors are willing to accept less than you owe provided you pay the amount in a lump sum. This is a “settlement.” While debt collectors will often send you settlement offers in the mail, you can also call the company and propose a settlement yourself. All collection agencies differ. Whether or not the company accepts your settlement offer is based on the following factors:
. Whether or not the collection agency offers settlements
. How willing the collector is to negotiate
. How much you owe
. The age of the debt
Before proposing a debt settlement, it’s imperative that you determine the maximum amount you’re willing to pay the collection agency. Your initial offer should fall well below the maximum you can afford. A debt collector isn’t likely to accept your initial offer outright, and starting low provides you with more wiggle room for negotiating.
Keep Documentation Throughout the Process
Unfortunately, collection agencies aren’t known for their integrity. A crucial step in negotiating with collectors is to request a copy of any agreement in writing. Failing to do so could result in you negotiating and paying off a settlement only to have the collection agency deny any knowledge of the agreement and demand the full amount. If you are paying your debt in installments, keep track of each payment and the remaining balance every month to ensure that you aren’t making more payments than you agreed to.
Once you’ve paid off the agreed-upon portion of the debt, ask that the collector send you a zero balance statement reflecting that you’ve satisfied your payment obligations. This is important whether you paid a reduced amount via a settlement or chose to pay off your debt in full. The original settlement agreement, evidence of your payment and the zero balance statement protect you in the event the collector tries to sell the unpaid portion of your debt to another collection agency.