Money & Debt

Debt collectors and debt buyers have one main goal: to recover as much of the debt as possible. However, there are limits to what they can realistically collect, and they often do not have the paperwork that proves you owe them the debt, or the debt may be too old. These create opportunities to negotiate a reduced payment amount.

Overview of negotiating

Whether you're dealing with a creditor directly, a third-party debt collector, or negotiating during a lawsuit, several payment options may be available:

• Lump-Sum Payment: If you can gather a significant amount of money, you may be able to settle the debt for less than the full amount owed. Creditors or debt collectors may prefer a one-time lump-sum payment to close the account quickly, even during a lawsuit.
• Payment Plan: If paying the full amount upfront isn’t possible, you can negotiate a payment plan, spreading the debt over time in more manageable installments. Ensure the plan is affordable and realistic, even if you are negotiating as part of a legal process.
• Debt Forgiveness: In some situations, creditors or collectors may agree to forgive part of the debt if they believe collecting the full amount is unlikely or will be too expensive.

Note: if a debt collector forgives some of the debt, they may issue you a 1099-C tax form. You may need to report the forgiven debt as income on your tax return.

Understand what you can afford to pay

Before negotiating with a debt collector, come up with a plan based on your financial situation:

• Take a close look at your income, expenses, and any other debts to determine what you can realistically afford to pay.
• Research the arguments you can make to increase your negotiating power.
• Come up with a payment plan or settlement amount that is well within what you can afford. If the agreement stretches you too thin it could lead to further financial trouble.
• Be honest about your limitations and only agree to terms that you can consistently meet. 

See our Trouble Paying Bills guide for information on prioritizing debts and determining what you can afford.

Do not make partial payments without a written agreement

If a debt is too old, it might be too late for the collector to take action. It might be past the statute of limitations, meaning it is too late for them to sue you for it. If you make even a small payment or acknowledge an old debt, the courts may reset the time period for collection, allowing you to be sued for the debt simply because of that payment. For that reason, it is best to not make any payments until you have a written agreement in place that you can afford to pay.

Read any written settlement agreement carefully before signing it

The creditor or its lawyer might present you with a written settlement agreement. You should read the agreement and make sure you understand what it says. When negotiating a written agreement, consider the following:

• If a judgment will be entered against you. If a judgment is entered against you, that:
  •  gives the collector what they are asking for in court,
  • stays on your credit report for seven years, and
  • it will likely allow the creditor to immediately garnish your wages or take funds in your bank account if you stop paying.
• If you are giving up any defenses or arguments by signing the agreement,
• If missing payments will automatically result in a judgment being entered against you,
• If interest will be added to the amount you agree to pay,
• If the account will be marked as “paid in full” or “settled for less,” which will negatively impact your credit score,
• If the creditor will agree to no longer report the debt to the credit bureaus

Understand what debt collectors can actually take from you

Your financial situation affects what debt collectors can collect if they sue you and get a judgment. 

• Your property and income below a certain dollar amount are protected.
• You might be collection proof, which means that even if the creditor gets a judgment against you, your income and property are protected. Use our easy form to see if you are collection proof.
• If you file bankruptcy, the debt will be discharged and you won’t have to pay it after the bankruptcy. Note not all types of debt are dischargeable.

Understand the power you have when negotiating

When you are negotiating with a debt collector, you can point out the following things:

• Make sure the debt is legitimate and that it isn’t a scam. You can follow the advice of the CFPB to figure out if you’re dealing with a scam company.
• If the debt is too old, it might be too late for the collector to take action. If they waited too long, it might be past the statute of limitations, meaning it is no longer enforceable in court.
• Debt collectors buy debt at a huge discount. Why should you pay 100% of a debt if they only paid a few dollars for it?
• Debt collectors might not have all the required documentation about your debt. You can send them a letter demanding that they verify the debt and send you the documentation that they have about it.
• If the debt collector has sued you, you may have a defense to the lawsuit. Fighting in court will take time and will be more expensive for the debt collector. Read more about affirmative defenses.
• If bankruptcy is an option for you, you can tell the collector that you are considering bankruptcy, and the collector may be more willing to negotiate.

Negotiations during a debt lawsuit

If a lawsuit has been filed against you, you may need to negotiate with the creditor’s law firm rather than the creditor or collector directly. In this scenario, the lawyer will likely be representing the creditor in court and may have the authority to negotiate settlements or payment plans.

You may need to provide information about your finances, including an affidavit and other documentation. Remember that any information you provide to the creditor will be analyzed to see if they can collect more money from you than they will receive if they settle. You do not need to share any financial information with the creditor unless a judge orders you to do so either in court or through a citation to discover assets.

When negotiating, make sure to point out any additional leverage you have in litigation, such as:

• The ability to force the creditor into private arbitration,
• The weakness of the creditor’s paperwork and ability to prove that you owe the debt,
• Any defenses and counterclaims you may have, and
• The collector’s ability to enforce any judgment it wins against you.

Make sure any negotiations take into account the costs of litigation, whether a judgment is being entered against you, and always get settlement agreements in writing.

Read more about responding to a debt collector, and what you can do if you are sued on a consumer debt.

Be cautious about talking to debt collectors and debt collection lawyers

Remember that debt collectors and their lawyers are trying to get as much money and information as possible. You will likely not speak to the same person or attorney twice, so make sure to get any promises or agreements in writing. If a creditor tells you to contact their lawyer, and the lawyer tells you to contact the creditor, you will need to be persistent and keep trying to contact someone to negotiate with.