How to Argue With a Debt Collector

How to Argue With Anyone, a guide to getting what you want without making enemies, is part of our series The Way Back to School.

My very first job in the “financial services” industry was as a debt collector for a major bank in the summer of 2006. I was an in-house auto loan collections agent for the bank, not to be mistaken with a collector who worked for an agency. This is an important distinction because the way you negotiate with a creditor, or the company you originally borrowed the money from, can be different from the way you negotiate with a third-party collector. This little detail also makes me feel less terrible about myself and my employment decisions.

I worked in collections for two years and, thankfully, left the job right as the world slipped into the housing crisis of 2008. My time at the bank taught me a lot about how the financial and banking world worked as much as it taught me about humanity.

If you’ve fallen on hard economic times and you’re unable to pay your debts, here are the things you need to know and do to negotiate with a debt collector.

A really good rule of thumb for dealing with your debt (and your financial life, in general), is to be proactive. When it comes to dealing with independent debt collectors, collections agencies or attorneys whose specific job is to collect on debts, your goal is to negotiate a payment that works for you and to avoid two things: long-term damage to your credit and a court-ordered judgment. A court-ordered judgement forces a debtor to repay a certain amount to a creditor. Judgments involve the courts and could result in garnishment of wages (which is when your earnings, like from your paycheck, are required by a court order to be withheld and sent directly to the creditor until your debt is resolved).

When you avoid your debt, the consequences could land you in court and ultimately put you in the same position you’ll end up in here (paying what you owe)—but with a lot more pain on the way there. So be proactive. Keep track of your debt; look at your statements or any other official correspondence sent to you. And don’t let your voicemail box stay full—because if creditors or collectors can’t reach you on that line, they’ll try to reach you somewhere else, like a relative’s phone or your place of employment.

Before you even think about negotiating, make sure that the debt you owe is actually your debt. After receiving a bill, request a “validation letter.” Debt collectors are required to send you one within five days of contacting you. This letter will let you know what you can do if you believe there is a mistake or an error. If the collections agency refuses to send you a letter, this is a red flag, so proceed with Nancy Drew–like caution. Scams are a reality, especially in our increasingly digital world. So make a point to verify the debt being collected is one you actually owe.

When I first started working at the bank, before I could get on the phone to start calling people, I had to spend four weeks learning about consumer protection laws. I don’t think you need to spend four weeks on the subject, but you should definitely understand how the law protects you from collectors.

Here are some of the highlights:

• Debt collectors can't harass you (for example, repetitive calls just to annoy you, threats of harm or violence, and calling you without telling you who they are), lie to you, or use profane language.
• They cannot threaten to deport or arrest you.
• They are only legally allowed to call you between 8 a.m. and 9 p.m.
• You can request that a collections agency only contact you through writing or through your attorney. If you’d like to make that request, the Consumer Financial Protection Bureau offers sample letters online.
• Collections in the time of COVID-19 is different because of the recently passed CARES Act. It’s a lot to navigate through, but thankfully the National Consumer Law Center has put together a listing of federal and state-by-state COVID-19 protections for all kinds of varieties of debt and obligations.

You don’t necessarily have to pay what the agency is asking of you; you can make your own offer. So first, figure out what you can realistically afford to pay. It’s important to know your limits so you don’t go beyond them and get yourself into a similar situation of owing more than you can afford.

Ask yourself these questions:

• How much could you afford in a lump sum payment to settle the debt? For example, you might owe $3,000 but you can only reasonably afford to pay $1,000.
• If you can’t afford any kind of lump sum, how much can you reasonably and realistically afford to pay each month toward the debt?

If you’re wondering why you can negotiate a payment or payment plan that is lower than what you owe, it’s because a debt collections agency has either purchased your debt from your original creditor, or they’ll get paid a percentage of what they can collect on. In the former instance, the agency typically purchases the debt at a discount. So for example, if you originally owe $5,000 to American Express (the creditor), a debt collections agency might buy the debt for $500. And so, to run a profitable business, the collections agency will try to collect more than $500 to make a profit, which they can do if the original contract or your state allows it. Sometimes they will try to collect a sum closer to what you originally owed, despite what they’ve paid. Knowing this discounting is happening is helpful when you’re negotiating a payoff with a debt collector.

Here’s how you can make sure you don’t: When you offer to pay a lump sum (or a monthly payment), don’t start with the maximum you can afford; instead, reduce your offering by at least 25–30 percent, or even as much as 50 percent of the total you owe.

For example, if you can afford a $1,000 lump sum payment, try offering a settlement in the amount of $500 first. This goes for monthly payments too. If you can afford $100, try offering $50 first. Some agencies might accept your offer. If they don’t, they’ll counteroffer and you know you have wiggle room with what you can afford. At some point, you might need to reveal your actual limit… but never make that your first offer.

If you are worried you can’t do this over the phone, try rehearsing. Remember, collectors are practicing their negotiation skills all day long because it’s their job. Being prepared can boost your confidence and allow you to stand firm with your offer. If you’re still not confident, you might consider handling all negotiations in writing.

Is negotiating a big, fat nonsensical dance where both parties know that the other party is not being completely open and honest with information? Yes, it absolutely is. But we’re humans and we do this with so many things in our lives. We withhold the whole truth and only show a part of it. If you’ve ever gone out on a date, you’ve probably danced this dance before. Negotiation is a lot less scary when you realize the game that’s being played. A negotiation is not really a win–lose situation either, because a good negotiation is a compromise where both sides get some of what they want.

Paco de Leon is the founder of The Hell Yeah Group, a financial firm focused on inspiring creatives to be engaged with their personal and business finances and to give them the tools and support to stop freaking out about it.