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Striking a deal with a debt collector

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.

Always start by offering less than you can afford. And then sit tight.

"Say 30 cents on the dollar. And they'll say 75 cents on the dollar," Detweiler says. "Just wait."

Use the power of silence. Don't say anything except maybe "hmm."

"Let them budge, not you," Detweiler says.

For more negotiation tips, check out this sidebar.

Once you and the debt collector agree on a payment amount, you'll want to get it in writing.

If you expect a debt collector to hash out a new payment agreement in writing, you could be waiting a while. And there's another risk -- a debt collector could change the terms on you.

So, Kershman suggests keeping detailed, dated records of all your conversations and verbal agreements with a collector. Then, write up the agreement and get them to agree to it.

Stipulate the terms

Send a letter to the debt collector outlining the payment agreement. You'll want to send it via registered mail or Xpresspost so you'll have a record of confirmation the letter has been received.

In the letter, explain that the collector has agreed to accept the negotiated settlement amount as payment in full for your debt. Keep a copy of the letter for your records.

If you plan to pay by cheque, add the following disclaimer: "Cashing this cheque constitutes payment in full." Write this disclaimer right on the cheque.

You'll want to emphasize this point in your cover letter as well. Make it clear that if the enclosed cheque is cashed, it means a debt collector has accepted your payment offer and the debt is considered paid in full.

You may even want to hold off paying until you receive a written confirmation back from the debt collector acknowledging your payment agreement.

Take copious notes

Whether you send your payment with your letter or you wait, make sure you have a copy of the payment agreement. You'll also want to keep notes of the phone conversation in which you negotiated the settlement. Make note of the day and time of the call, the name of the collector that called and what was said.

The more proof you have, the better. You may need it.

Some consumers get hassled with collection calls on debts they've already settled.

Let's say you pay $1,000 to settle a $2,000 debt. Another debt collection company may call you demanding the remaining $1,000. If you've kept good records, you have proof the debt is paid in full.

According to most of the laws about third-party debt collection in Canada, a collector must send you a written notice telling you the amount of money you owe, the name of the creditor to whom you owe the money, and what action to take if you believe you do not owe the money.

Once you receive this notice, you have 30 days to respond. Kershman says if you send written proof that you've paid the debt, or that the debt in question is not yours or the statute of limitations has passed on your debt, a collector may not contact you again.

Firing off a copy of your payment agreement with your old debt collector to a new collector should halt collection calls. If it doesn't, you may want to contact a lawyer.

To find a bankruptcy lawyer near you, visit the Canadian Bar Association, or log on to the CanLaw Web site and search for an attorney with expertise in debt collection in your area.

Get it in writing

Having written proof is paramount when settling a debt with a debt collector. And you'll want to be just as diligent with your records when agreeing to a monthly payment plan to pay off an old debt.

With a payment plan, you'll make several smaller payments rather than one big one. But by agreeing to a payment plan, you may wind up paying closer to the full amount of your debt.

If you opt to settle a debt by payment plan, be sure to send a letter to the debt collector outlining the payment schedule in detail. Send this letter via registered mail and be sure to keep a copy for your records.

Whether you send the first payment with the letter or wait until you receive written confirmation of the payment schedule from the collection agency is up to you.

Don't send your cheque

Whatever you do, don't let a debt collector talk you into paying with postdated cheques or making automatic, electronic withdrawals from your chequing account.

You never want to give a debt collector your bank account number, as there have been cases of unscrupulous bill collectors going into the account and draining it, which is illegal.

If you're worried about sending a personal cheque to a debt collector, you may want to pay by money order instead. Just be sure to keep records of your payment and your payment agreement.

"The bottom line is collectors can't refuse your payment in any form," says LeBlanc. "They aren't supposed to be incurring any costs, so regular mail is the only thing they should be using."

So if you feel most comfortable sending them money orders, don't let them fool you into saying you can't.

Ask for a clean slate: Here's one last thing to consider when negotiating with a debt collector -- your credit report.

Although a third-party collection agency can't make any changes to your credit report, you can ask your creditor to make notes on your report once they've received confirmation from the collector that your debt is paid.

"A collection item will stay on a credit file for a period of six years. Of course, if the account is paid in full, it will be so noted on the file," says Marie-Line Colangelo, a spokeswoman for Equifax Canada, one of the country's two main credit bureaus.

Creditors are unlikely to remove your negative rating once it's on your report, but most will mark that your account has been paid. It won't fix your credit rating problems instantly, but it's a good first step in cleaning up your credit history.

That's why LeBlanc says if you can afford to pay off your whole debt, you should.

"Otherwise, if you make a settlement, it shows as a balance outstanding on your credit report, and will make any new creditors question it for six years."

If the thought of negotiating with a debt collector makes you queasy, you may want to get some help.

If you aren't a seasoned negotiator and the thought of haggling over the price of a new car makes you feel ill, don't even start trying to negotiate with a debt collector.

Instead, enlist the help of a credit counsellor. For tips on finding a good credit counsellor, check out this article.

Bruce Gillespie, a freelance writer and editor in Simcoe, Ont., contributed to this report


Editorial Disclaimer: The editorial content is not provided or commissioned by the credit card issuers. Opinions expressed here are author’s alone, not those of the credit card issuers, and have not been reviewed, approved or otherwise endorsed by the credit card issuers.

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