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Special section Managing debts in collection

Ready to pony up that money you owe? You could get a break if you play your cards right.

 
How to strike a deal with a debt collector

A debt collector is calling and you finally have a little money to offer.

Before you pay a cent, why not try negotiating a better deal? By offering a lump-sum payment, you could easily cut your debt in half.

Can't swing a big payout? Insist on a monthly payment amount that won't strain your budget or take money away from more vital expenses such as food, utilities and rent.

"Bargain with them," says Mary Fons, a consumer protection attorney in Stoughton, Wis. "Don't let them convince you that their debt is the most important one."

Exert power
Believe it or not, you do have some leverage here. Debt collectors want your money. And they can't get a cent until you give it to them.

"Negotiation is key," says Michael Flannagan, a former debt-collection supervisor in Tacoma, Wash. "Every bill collector in the world will ask for the balance today, period. But every bill collector I know will take less than that. They don't get paid unless you pay them. So set up some kind of reasonable arrangement."

Step one in negotiating with a debt collector is to know your rights. Debt collectors will say all kinds of things to upset you and pressure you into agreeing to a payment you can't afford. Don't let them intimidate you. You have the law on your side.

The Fair Debt Collection Practices Act was passed in 1977 to protect consumers from abusive debt collectors. There's a whole list of rules third-party debt collectors must follow when collecting a debt.

Brutal insults and threats aren't allowed. For a summary of federal debt collection rules, click here.

You may have additional consumer protections in your state. Many states have their own debt collection laws.

In some states, a debt collector can sue on behalf of a creditor or garnish your wages. In other states, none of these things can happen to you, no matter how much a debt collector says otherwise.

Glean fact from fiction
"You have to know what's the truth and what's not the truth so they don't frighten you into a settlement you can't afford," says John Ventura, a consumer attorney in Brownsville, Texas, and author of the e-book "Stop Debt Collectors Cold."

For example, even if a debt collector could garnish your wages, first they would need to get a judgment against you in court.

"Debt collectors will say, 'If you don't pay this tomorrow, it will come out of next Friday's paycheck,'" says Gerri Detweiler, author of "The Ultimate Credit Handbook." "They can't do that. But they say it."

For more information on debt collection laws in your state, contact the consumer protection division of your state attorney general's office. To find your state's attorney general, click here.

Once you know the absolute worst that can happen to you if you fail to pay a debt collector, it's time to take a close look at your finances.

How much can you realistically afford to pay toward an overdue debt? Providing necessities for your family should be your top priority. All other bills are of lesser importance, regardless of what a creditor or debt collector may say. These 16 rules will help you prioritize your bills and expenses.

Once you know how much money you can afford to give to a debt collector, it's time to start negotiating.

Offering a single lump sum payment is a great way to go. Debt collectors want your money ASAP and they may be willing to settle your debt for a whole lot less if you agree to one big payment.

"They'd rather just get paid quick and be done with it and move on to the next client," Detweiler says.

Some debt collectors will send you letters offering to settle a debt if you pay 50 to 70 percent of the amount due.

Before you agree, try negotiating a better deal. Start by offering an amount well below the amount you can afford. Many debt collectors have paid pennies on the dollar for old debts. They'll make a profit on just about any payment you send them, no matter how small.

 
 
Next: "Start by offering less than you can afford."
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