Debt settlement is one of the most common forms of debt relief. Debt relief can include bankruptcy, debt settlement, and debt management, but when individuals consider debt relief, many people consider that as debt settlement.
If you can’t pay a collection agency the entire amount you owe on a debt, you may want to try to negotiate a settlement with the collection agency. If you are successful, you’ll pay only what you can afford, and the collection agency will accept that amount as payment in full.
Sounds easy enough, right? But keep in mind that collection agencies are trained to get as much money as possible from consumers. After all, the more they collect, the more money they make! So negotiating an affordable settlement can be challenging if you don’t know what you are doing.
Some links on this site are for services for which we may earn a commission. This helps us keep the information on this site free. Also keep in mind this information is educational, and is not a substitute for legal advice.
Free Debt Settlement Advice
Here are answers to two of the most frequently asked questions we get about settling debts with bill collectors.
How little can I pay to settle my debt?
The amount you’ll be able to settle for depends on a lot of different things, including:
- The age of the debt. The older the debt, the more likely that you can get a good deal. (But be very careful about paying a debt that is too old — outside the statute of limitations
- Whether the collection agency has purchased the debt you want to settle or is collecting on behalf of the creditor. If the collector has purchased the debt for pennies on the dollar, for example, even a small settlement can be profitable for it.
- How collectible the collector believes you debt is. For example, if you are working at a job and earning wages that a collector could garnish, it may be more interested in suing you for the money you owe than settling. However, if you are unemployed, the collector may be willing to settle thinking that getting something from you is better than nothing at all.
- Where you live. In some parts of the country debt collectors are more likely to sue consumers for their past due debts than settle the debts.
- Whether you have been sued or not. If you are facing a debt collection lawsuit, you may have to pay a much higher percentage than if haven’t been sued.
Ultimately, if you try to settle a debt, your goal should be to settle for as much as you can afford without putting your personal finances at risk. Never agree to a settlement that you cannot afford! Otherwise, you are likely to create new financial problems for yourself. This means that before you begin negotiating with a collector it’s essential that you know exactly what you can afford to settle for.
Also, when you begin negotiating, never offer that amount right away. Keep it in the back of your mind, but always offer something less at first. Because whatever you offer, the collector is likely to counter with a higher amount so you need to give yourself some wiggle room to come back with a slightly higher offer. It may take several back and forth rounds before you and the collector reach an agreement.
You may also want to consider the tax consequences of debt settlement. You can check the IRS publication 4681 that allow you to understand if you may be tax solvent. If you are tax solvent, you may have to pay income taxes on the forgiven debt after the creditors give you a 1099-C form (cancellation of debt).
Important Tip: Collection agencies are not required to accept whatever you can afford to pay on a debt. While they may have some “wiggle room” to negotiate with you, if your offer is too low, they may decide to sell the debt to a collection agency or sue to collect.
Should I Work With Freedom or National Debt Relief?
You may be at a point where you are considering a debt relief company. You search Google and find there are many review sites that say either Freedom Debt Relief or National Debt Relief are the best options for debt relief.
Before signing the dotted line with either Freedom or National Debt Relief, you may want to consider reading both the positive a negative reviews for both companies. You can also search for National Debt Relief reddit or Freedom Debt Relief reddit to see other experiences that individuals have had with debt relief.
While these terms don’t necessarily mean anything, you can review such sources for both National and Freedom Debt Relief to make the most informed decision.
Can I pay a settlement in a structured settlement?
When it comes to collection agency debt settlement, the sooner you can pay the negotiated amount the better. Although some collectors will agree to let you pay a settlement amount over time — maybe in a series of two to six payments — most of them will expect you to pay the amount immediately in one lump sum.
For this reason, it is very important to put money aside before you begin trying to negotiate a settlement. If you cannot fund an agreement right away, a collector will probably cancel your deal. Also, the lower the settlement amount, the less likely that the debt collector will let you pay it over time.
Warning! Never pay a settlement amount until you have in hand a signed settlement offer. It should spell out the terms of the deal you agreed to and should include language stating that the debt will be considered paid in full when your payment is received.
Can I negotiate my own collection account settlement?
Yes, you can settle your own debt! The main advantage of doing it yourself is that you will not have to pay a lot of money to a debt settlement firm to negotiate for you, which means that you’ll have more money to settle with. Also, although there are good settlement firms, there are bad apples, too, and you may end up hiring one of them.
Still, it can be very helpful to get expert advice when you want to settle a debt. Here are a couple of reasons why:
You don’t know what you don’t know. For example, you don’t know how little a particular collector will probably settle for or the likelihood that it will sue you if the two of you cannot reach a settlement agreement. As a result, you could end up paying more to settle a debt than you really needed to because you did not realize that if you had held out a little longer you could probably have struck a better deal for yourself.
Your emotions can get in the way. Debt collectors are trained to get as much money as possible from consumers during settlement negotiations and the collector you deal with has probably negotiated settlements many times before. In contrast, debt settlement is probably all new to you so you are likely to feel intimidated and even a little scared, maybe because you are worried about your credit, whether you will be sued, whether you will need to file for bankruptcy, and so on.
Finally, the payment operations takes a lot of time and effort, so this is important thing to consider if you are settling your debt on your own.
As a result, your emotions may take over making it difficult if not impossible for you to stay “calm cool and collected” during your negotiations and so you may end up agreeing to a settlement offer that you cannot truly afford or you may say or do something to derail the negotiations.