14 Things to Do When Settling Your Debt With a Creditor or Debt collector

What to do

1. Choose whether or not you want to talk to the collector.

Suppose a creditor or a debt collector tries to get in touch with you. In that case, you might want to avoid answering the phone or other forms of communication until you know your rights, find out if the debt is yours, decide if you want to file for bankruptcy, and find out if the statute of limitation period has passed. You don’t want to give the collector information to help them get the money or, even worse, say something confirming the debt.

2. Keep a record if you decide to talk to the collector.

A collections log is a list you write down when a collector calls, who you talk to on the phone, and what the collector says. Your record doesn’t have to be anything special. You can write it on a notepad or scrap of paper or use your computer or phone. A collections log will help you figure out who is calling you, where they are calling from, and what debt they are calling about. It will also help you track how often a particular collector calls and note when collectors say different things on different calls.

If the collector sends you rude texts or voicemails, you should keep them. If you decide to sue the collector in court or try to settle the debt, these records can help.

3. Write to the collector to ask it to stop contacting you (if that’s what you want).

Under the federal FDCPA, a debt collector must stop contacting you if you ask them to. There are a few exceptions to this rule, though. You must put your request in writing. You can send a letter to the collection agency, asking for a return receipt and keeping a copy, saying that you don’t want to hear from them anymore. You can also send this letter electronically if that’s how the collector prefers to get messages from people. So, if you send an email to the debt collector, you can send your message that way.

But give it some thought before you tell a collector to stop talking to you. If you want to keep track of the debt status or talk to the collector about settling it, you might not want to give them a “cease communication” order. If you tell the collector to stop talking to you, it can’t get in touch with you again unless it’s to serve you with a lawsuit or do something else legal. Remember that you can ask the collector to stop calling you only at certain times of the day or at specific phone numbers.

But if you’re thinking about going bankrupt, tell the collector to stop calling you. The “automatic stay” is an order that goes into effect once you file. Most collection calls stop because of the stay, but collectors can still call you before you file.

4. Tell the collector if you don’t think you owe the debt.

Tell the collector why you don’t think the debt is real or don’t owe it. Most of the time, debt collectors need to learn that they might need help to get you to pay. If your reason is good, the debt collector might stop trying to get the money from you on their own. Their time and money would be better spent on people who don’t have a good reason not to pay.

If you act quickly, you can ask the debt collector in writing to verify that you owe the money. While you do this, the debt collector must stop trying to get money from you.

There are various reasons why a debt is not real. For example, a debt collector may pursue you for a debt that is not yours for a variety of reasons. Perhaps a fraudster opened an account in your name, or stole your credit card details and shopped online. Sometimes, you can also be billed for an ex-spouse’s debt.

You can always inform the debt collector that it is not your debt. Hence you would not make any payment.

5. Check the credit reports

Get a copy of your credit report from Experian, Equifax, and TransUnion, the three major credit reporting agencies. Check the reports to see if someone used your identity to open or obtain loans or accounts in your name without your consent.

6. If you can’t pay, tell the collector that you can’t

Even if you can’t pay, a collector can still try to get their money. But if you tell collectors you can’t pay and give them a short explanation of why you can’t, they might stop trying to get money from you and move on to other people. It could also keep your case from being sent to court.

But don’t admit that you owe the debt or say anything that could start an SOL (statute of limitations period) clock that has already passed. Depending on your state, if you make a partial payment on a debt or admit that you owe a debt that you haven’t been paying, you might reset the statute of limitations. Sometimes, a new promise to pay a debt could also restart the clock on when the debt must be paid.

Debt collectors can try various tactics to get you to say that the debt is yours. But you should never give in to that pressure. You should say, “This debt is not mine. I won’t pay a penny for it.”

7. Tell the collector where you live now.

You can get away from debt collectors by changing your phone number or not giving them your address. But hiding your location won’t stop collectors from trying to get their money. It will just mean they might write letters and call people they think might know where you are or who you are. Collectors who don’t know where you live have much more legal freedom to contact your employer or friends and ask for information about you, like your address. But if the collector knows where you are, it is against the law for them to talk to your employer or friends.

8. Tell a convincing story

The person you’re talking to on the phone is a worker, not a counselor. Explain why you can’t pay your debt as agreed and stay out of trouble. Make it clear to your creditor that you’re having trouble, and tell them what you’re doing to get back on track.

Before you talk to your creditor, you can write down and practice a few go-to sentences:

“During the COVID-19 pandemic, I lost my job and haven’t been able to pay my bills.”

“I have been sick for a long time, so I’m not making as much money as I used to.”

“Right now, my partner can’t work, so we won’t be able to pay as agreed for a while.”

“I can’t pay my bills anymore, and I’m thinking about filing for Chapter 7 bankruptcy.”

Tell the truth no matter what. Keeping the fact straight is much easier, and you’ll feel better if you don’t lie.

9. Ask questions, and don’t let bullies get away with it.

Don’t be afraid to ask questions, and don’t let people mistreat you. Fair Debt Collection Practices Act (FDCPA) says that creditors and debt collectors can’t:

• Say you’ll be arrested or threaten to do so if you don’t pay back your debt.
• Pretend they work for the government
• Make you pay back debts that you don’t owe.
• Put your name there for everyone to see on a website or social media.
• Do anything to bother you at any time.
• Never let a debt collector get away with foul language or threats of violence.

You can sue a debt collector in state or federal court if they break the FDCPA. You can even sue in a court for small claims. You have to do this within a year of when the violation happened. If you win the civil case, the judge can order the collector to pay you for any damages you suffered and give you statutory damages of up to $1,000 plus attorneys’ fees and expenses. The court could also tell the debt collector to stop doing certain things to try to get the money.

10. Be professional

It’s just as important to know if you owe a debt as to understand how to deal with calls from creditors. As with any legal or financial matter, keeping conversations professional and not too personal will protect you emotionally and legally.

What you shouldn’t do

11. Don’t tell a collector anything about your personal finances.

Some collectors may say they need to know about your income so they can offer you a lower payment amount, but you should never give them your personal financial information, such as your:

Bank account numbers (unless you’re making a payment, in which case you might want to pay in another way so the collector doesn’t get your banking information), your Social Security number, or the amount or value of the property you own.

Once you and the debt collector have agreed on how to pay off the debt in writing, you’ll send in your payment. Sending a check through the mail with a return receipt is the safest approach to pay a debt collection agency. This will be proof that the collection agency received the check.

If the creditor or collector gets a judgment against you, this information could be used to take money from you by taking money out of your bank account or putting a lien on your property.

You can tell them some basic facts about your money problems.

12. Don’t pay in “good faith.”

A debt collector will often ask you to make a small payment, not as part of a settlement. The collector might say that the payment shows you are acting in “good faith.” You might think that if you pay this bill, the collector won’t sue you, and your credit will improve. Not true. The deadline will be pushed back because of this small payment.

In most states, the clock on the statute of limitations starts when you make your last payment. The time limit could start over with every new payment, no matter how small.

13. Don’t promise to pay or say the debt is real.

Even if it’s clear you owe the money, you shouldn’t say, “I know I owe this and will pay you as soon as I can,” or “I can start paying you next month.” It could restart the time limit if you admit that you have to pay.

Instead you can say, “Please validate the debt in writing within the next 5 days. I need to see the details first.”

Any promise you make to pay could be seen as a separate contract, which would extend the time you have to pay back the debt.

14. Don’t get angry

Using bad words, yelling, or getting angry won’t help. If call records are needed for a court case, and you’re the one who’s being abusive, it will hurt your case.

Also, if you lose your temper, you might say something to the collector that you didn’t mean to say.

How to settle debts with a debt collector

Any debt collection agency that approaches you to collect a debt is required to provide you with the following details at the time of the initial contact or in writing within five days of the initial contact:

Creditor’s name

The total debt amount

Even if the initial creditor is different from the present creditor, you have the option of disputing the debt or requesting their name and address.

You have the option of disputing the debt or requesting more details from the debt collector. It’s always a good idea to find out more if you are still determining who or how much you owe. You can use this debt validation letter for this purpose. The debt collector is prohibited from contacting you again until it sends you written confirmation of the debt if you dispute a debt or a portion of debt with the debt collector in writing within 30 days of receiving the validation letter.

You can reply to a debt collector attempting to collect a debt using sample letters. If the debt is valid, you can send a debt settlement letter to the debt collector explaining your payment plan.

If the payment plan needs to be more convincing for the debt collection agency, they may reject your debt settlement offer. In that case, you can counter a debt settlement offer with a revised payment plan. If the plan is practical and sound, it is more likely to be accepted.

Once the proposal is accepted, you can sign a debt settlement agreement letter with the debt collection agency and make payments per the proposed plan.

5 Most frequently asked questions

1. What occurs when you reach a creditor settlement?

Although the balance of an account is reduced to zero when it is settled, your credit report will still reflect that the account was settled for less than the total amount. A settlement rather than a full payment on an account is viewed negatively because the creditor decided to suffer a loss by accepting less money than was due.

2. What portion do creditors often agree to?

According to the American Fair Credit Council, the average settlement amount is 48% of the outstanding debt

. So, yes, you could pay off a dollar debt for fifty cents.

3. Is it better to settle debt with a creditor, or should you pay in full?

If you can, paying off your debt in total is always best. Even though settling an account won’t hurt your credit score as much as not paying, a “settled” status on your credit report may not be liked by potential lenders as it signifies that you made only a partial payment.

4. What is the ideal settlement offer?

Usually, a creditor will accept 40% to 50% of the amount you owe, but it could be as much as 80% if you’re dealing with the original creditor and not a debt collector. In either case, your first settlement offer must be below the 40% to 50% range to give you room to negotiate.

5. Will paying off debts help my credit?

When you pay or settle a debt, your FICO® 9, VantageScore 3.0, and 4.0 scores may go up when your credit reports are changed to show that you have paid off the debt. But because older scoring models don’t ignore paid collections, the scores made by these older models won’t get better.

In some cases, you may be able to have a settled debt reported as paid in full by the creditor. You will have to talk with the creditor about this, but the creditor is not required to do so. But if your debt is listed as “paid in full” instead of “settled in full,” that negative mark won’t show up on your credit report, and your credit score won’t take a hit because of it. If your creditor agrees, get it in writing and ask when the account will be reported as paid in full to the credit bureaus.

Usually, the partial settlement stays on the credit report for 7 years from the date it was settled.

Conclusion

Try to work something out with your creditors before they assign your accounts to someone else.

If you don’t talk to your creditors when you have the chance, you’ll have to talk to debt collectors instead. Also, when your debts are sold, your credit report will show collection accounts instead of late or missed payments.