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What to Do and Not to Do When Negotiating Debt

Have an ugly stain in your financial past? Around 77 million people have credit reports that show a debt in collections. According to the Consumer Financial Protection Bureau, the average balance is over $5,000.


However, depending on the type of debt one carries, effective negotiating might be enough to help you climb out of the hole.

Here’s what you should and should not do when negotiating your debt.

Do: Understand the Difference Between Creditors and Collectors

A creditor is an entity that issued the loan. A debt collector is a third-party company hired by a creditor to recoup payment. In some cases, a debt collector may purchase debt and try to collect it on their own to earn as much of a profit as possible.

If you’re receiving phone calls about your debt, then it’s likely from a debt collector. The Fair Debt Collection Practices Act (FDCPA) protects debtors from harassing collectors. The FDCPA covers mortgage, credit, medical and other types of personal debt. If you’re receiving phone calls at odd hours of the day or feel harassed by a collector, you’re legally entitled to protection.

Even if a debt is legitimate, you can still write a letter to the debt collector to stop communications. Once a collector has received your letter, they can only contact you via mail and to announce that:

  • There will be no further contact.
  • They might take action in the future.
  • They are certainly going to take action.

Do: Know the Statute of Limitations on Your Debt

One of the beautiful aspects of America is the variance across regions, cultures, and people. When it comes to legalities though, we’re victims of luck. This is especially true with the statute of limitations on debt. If your account has been delinquent for more than a few years, you might not be legally obligated to pay it back.

It all depends on the state you live in and the type of agreement you have. Oral and written agreements, promissory notes, and open-ended accounts each have different statutes of limitations. For example, open-ended accounts, like credit cards, tend to have the shortest statute of limitations, with many states’ lasting just three years. Written agreements and promissory notes (e.g., a student loan) tend to have longer statutes, with over a half-dozen states having limitations as long as ten years.

Here’s a list of every state’s statute of limitations by agreement type.

Do: Document Every Discussion and Get Agreements in Writing

Whether you’re trying to survive a debt-collection experience unscathed or researching the possibility of having legally expired debt, your effectiveness at recordkeeping will determine your success.

The burden is on a debtor to prove they’re covered by a statute of limitations. If your debt is expired, you need to have the agreement that says when the debt originated. Don’t expect the creditor to help you out here.

It’s equally imperative to keep a log of discussions with creditors and collectors. Every interaction, whether in writing, email or over the phone, needs to be documented clearly. This will help you keep a timeline of events and refute any incorrect claims made by the opposition.

DO: Investigate refinancing or if you are a senior age 62 or older consider taking out a reverse mortgage loan to settle your debt with creditors at less interest. According to, the current interest rate on a reverse mortgage is as low as 3.5%. This is far below the average non-secured debt loan which will save you A considerable amount of interest charges.

Don’t: Agree to Pay an Amount on the Spot

If you can help it, it’s wise to never talk to a collector over the phone. Of course, this isn’t always possible. They may use tactics to catch you on the phone unexpectedly. If this does happen, ask them for all pertinent information about your debt. Debt collectors must legally provide you with their name and company, how much you owe, the details about the original creditor, and information about how to dispute the debt.

If they are legitimate, request for communication via mail going forward or write them a letter to end contact. Whatever you do, never acknowledge that you owe a debt, and most definitely never agree to pay it. Both of these things could land you in a lawsuit you’ll lose.

Don’t: Yell!

Like any job, debt collectors come in many varieties. Some will be more pleasant to deal with than others. If you find yourself in a frustrating conversation, resist the urge to react negatively. Though co-founder of Freedom Debt Relief, Andrew Housser, recalls a story of a friend settling debt through these means, it’ll often result in more harm than good.

A rotten debt collector may be difficult to deal with no matter how you behave, but should things ever proceed to court, your track record of composure will reflect favorably upon you.

Don’t: Make Unrealistic Offers to Settle Debt

The only way to be successful in negotiating debt is to a) have an outstanding balance (the older, the better), and b) make a legitimate offer to resolve the debt. Creditors and/or debt collectors want their money at the end of the day. Taking you to court means time and money on their part too.

When deciding what to offer, first choose between a repayment plan and a lump-sum offer. Either strategy could get a creditor or collector off your back, but think carefully about your offer amount. Every debt and creditor/collection situation is different, but as a general rule of thumb, aim to offer around 30 percent of your original debt amount. You can help your cause by stating that you’ll send payment immediately as long as they sign off that the debt as settled.

Dealing with outstanding debt is one of the most stressful experiences we can go through in life. If this describes your situation right now, know that there’s a light at the end of the tunnel. Know your legal protections, communicate via mail, keep records of everything discussed, and when the time comes to try to settle, make the offer worth their while.