Never contact a collection agency by phone.
Never! Collection agents are not trained to settle with you, they are paid to collect money, and they will say anything to get you to pay. You are opening yourself up to possible abuse, which though it is illegal, is extremely common. If you say the wrong thing to a collector in the heat of the moment, it could ruin your chances for a good settlement in the future.
Letters are the best way to contact a collection agency. You want to send the letter certified, signature required so you have a paper trail to follow during the settlement procedures. Believe me, you might need it. Some collection agencies are starting to refuse certified mail if they think the letters might be part of your gaining the legal upper hand, but there is a way around this. Mark the envelope “Payment enclosed”. This is sure to get them to accept and open the mail.
If you know the fax number, I would also fax your settlement offer to the collection agency. There are many services available which offer a “certified” delivery of the fax receipt, which is almost as good as the certified letter receipt.
What if the collection agency contacts me first and makes an offer?
Sometimes (though this happens VERY rarely with a collection agency) you may be contacted via phone or letter and with an offer to settle. When this happens, you can be sure that you can get a better deal than the one offered. If this contact is by phone, listen carefully; get the rep’s name and direct telephone number and the company address to which you will be sending your settlement.
After you get off the phone, or review the letter, come up with your own offer and the use the sample letter “Counter Offer” in Sample Letters & Forms.
How much to offer
First of all, make sure you can back up any offer you make with real cash. To figure out how to get blood out of a turnip, we offer some suggestions further down in this booklet.
To give you some background, most bad debt companies pay or receive literally pennies on the dollar for the debts on which they are trying to collect. The amount that companies pay for bad debt depends on the type of account and its age:
• Debts that have recently been charged off: 6 to 7 cents on the dollar.
• Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar.
• Years-old, out-of-statute debts: A penny or less.
With this in mind, you should always start your offer at 25% or less. Let’s understand the math here. If your debt is $1000, let’s say at the most, the collection agencies have paid or will collect 7 cents on the dollar, or $70. If you offer them $250 (25%), they are still making a profit of $180. Remember, the credit card companies are out of the picture at this point. This money goes directly to the collection agencies.
Other things to remember in collection agency negotiations:
1. We’ve already said this, but it bears repeating. NEVER talk to a collection agency on the phone. Period.
2. Penalties and extra interest are typically fictitious amounts of money added on by the collection agency to pad their profits. I’ve seen as much as to 50% of the debt or more claimed to be owed by a collection agency consisting of interest and fees. Example: Recently, I talked to a guy who had his $5000 original debts balloon up to $11,000 in less than 3 years. This is illegal; every state has usury laws (which dictate the maximum interests allowed to be charged.) If you consider the junk debt buyer paid 7 cents on the dollar or less, there is no way there is this much interest. Most companies would be thrilled to get you to pay the original debt even without the extra penalties they add on and will usually be more than agreeable in waiving these fees.
3. Time is on your side. Unlike your negotiations with the original creditor, where you are racing the clock to prevent the account going into collection, the older the debt, the better. As time passes, the creditors will likely stop calling and the debt will be filed away for future attention. The longer the debt remains uncollected, the better your chances will be of getting a good settlement. If this is the second or third collector to try and collect, they will accept a very small amount.
4. Never look too eager to settle. Take plenty of time to reach an agreement. Don’t accept the first, or even second, settlement offer. Make sure that they are the ones calling you to push the deal forward. You cannot expect to reach an affordable settlement if the creditor thinks he has the upper hand. If, for example, you tell a creditor that you really need to get this debt settled to get into your dream home, you can forget any kind of settlement. The creditor will insist on the full balance.
5. Remind the creditor that the statute of limitations is approaching on the debt and they only have a limited time to deal with you. Know when the statue is up on each debt and be prepared to give the creditor the time line.
6. Use the threat of bankruptcy. It will be in your best interest if the creditor believes that you have very little money and you are teetering on the edge of bankruptcy. You should approach each creditor as though this is their last chance to compromise, and get something out of your debt, before you declare bankruptcy and they get nothing. Be careful when doing this, however. If you accumulate any more debt after stating this to a creditor, (and they record all of your correspondence and phone calls), you may not be able to discharge this debt within bankruptcy.
7. Remind the collection agency of the handsome profit they will make even if you only pay 25% of the amount. If your debt is $1000, let’s say at the most, the collection agencies have paid or will collect 7 cents on the dollar, or $70. If you offer them $250 (25%), they are still making a profit of $180.
8. Offer to pay more money if the collection agency agrees to remove the listing completely. The collection agency has nothing to gain by reporting the account on your credit report, other than getting you to pay. They are not legally obligated to report this on your credit report as some claim.
If you’re contacted by more than one collection agency for the same debt
If you’re contacted by more than one collection agency for the same debt, it means that the original creditor has hired a secondary or even tertiary collection agency. This indicates that the original creditor and even the first collection agency has given up on you. This means that the second collection agency has paid even less for the debt than the first one. If the agency hasn’t been able to reach you by phone but knows that you are receiving its letters, it may be willing to take even less.
