Strategies for Negotiating With Debt Collection Agents

Written by Monica Sandler

Wednesday, 17 March 2010 12:32

Imagine someone owed you $1,000 and didn't pay for a long time. Wouldn't you be happy if you could at least get a portion of that money back? Let's say $700 or even $300. That's exactly what the banks think of defaulted borrowers. After a customer defaults, his loan is considered impaired, and is passed on to collection department, or even sold at a discounted price to collection agencies. In either case, one thing is certain: the bank will be happy recovering only a portion of the loan.

If you defaulted on a loan, you can turn this to your advantage. Many collection agencies will offer you a 30%-60% discount off your original loan if you are ready to pay. The exact discount depends on the length of delinquency and the type or loan. However, it also critically depends on your ability and preparedness to negotiate with the collectors. Call the collectors and ask what it will take to close your defaulted loan. When doing so, take into account the following factors.

1. Don't ever disclose how much money you have on hand before you hear an acceptable offer. If the collection finds out you have more than they are prepared to discount, they will not go down any further, and they will fight for the cash you have.

2. Don't disclose your address, phone number, or where you work, before you have a deal with collectors. Don't sign any papers and don't make any promises. If for any reason you aren't able to pay the loan, the collectors will continue haunting you using the new information you provide. Only after you make a deal should you disclose the information. However, keep in mind, that if you have other unpaid debts, that information can be passed on to more collectors as a new lead.

3. The farther into default you are, the higher are your chances of getting a deeper discount from the collectors.

4. Don't accept their first offer, and you probably won't want to accept the second either. Realize, that from the collection's standpoint getting little cash now is better than not getting anything at all, so wait until they lower their requirement down to an acceptable number. Some inexperienced collectors might not realize that, and you might have to explain that you are offering LITTLE cash but NOW, as opposed to NO cash but in FUTURE.

5. Once you hear the offer, that seems acceptable, try to further bring the amount down by offering them cash today instead of a payment plan or a suggestion to wait for a month. But do it only if you have that cash on hand. "Cash today" has an enormous effect in any negotiation. Many negotiations fail every day only because the necessary cash is not available at the right time. However, when people know you have it, they can be ready for quite extensive concessions.

6. If the negotiation doesn't go your way, don't tell the collectors you can leave the loan unpaid forever. They know it's false, because otherwise you wouldn't have called. Being in the business, they've seen people, and they've heard stories, and they know precisely why you are calling. Just tell them you don't like owing money, you realize that the damage has been done, and given your resources you are trying to see what you can do to put that debt delinquency behind.

7. If you have separate defaulted loans, they might end up with the same collection company. Don't mention that to collectors, and try to negotiate best discount on each loan separately. If they go lower on one loan than the other, you will know how much is their best offer. Try to bring the discount on all loans to the same deepest level.

8. Make sure the collector agrees to report to credit bureaus as "paid in full" (even though you didn't pay the full amount). In some cases they go for "settled", which means you only paid partially, but still to their satisfaction.

9. Whatever deal you make, write the details down, and get them to fax it to you in an official letter.
10. The best time to negotiate with loan collectors is December. Collection agents are paid bonuses off the money they collect, and the results are measured at the end of the year. Many of them would go an extra mile to increase their cash results, so your position is clearly advantageous.

Over the past decade the banks have aggressively lent money. It wasn't always lent to the most creditworthy consumer, it wasn't always arranged by trustworthy agents, and it wasn't always the money the banks actually had (banks are leveraged, which means for every dollar they have, they borrow more dollars, which they then lend). As long as the banks hold on to a questionable lending practice, you should fight to defend your position as a customer.