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By Laura Royer, [email protected].

If a military family is experiencing financial hardship or has debt that has been sent to collection, it’s important for them to understand how to work with debt collectors. Personal Finance Managers (PFMs) can help clients understand the difference between different types of debt collectors. The client needs to know who they are talking to when it comes to working with a debt collector. Are they speaking to the original creditor, a collection agency working on behalf of the original creditor, or a collector who purchased the debt from the original creditor? And now owns the debt?

Who Is Collecting Debt?

This differentiation is important as it will allow the borrower to know how much wiggle room they may or may not have to negotiate a lower settlement than the original balance. Also, if the borrower is dealing with a collection agency that is working on behalf of the original creditor, the collection agency usually will not negotiate different amounts for the original creditor.

If the original creditor still owns the debt or the debt is a secured debt, the likelihood of getting a lower settlement (unless it’s a medical debt) is less likely than if the debt has been sold to a collection agency. In contrast, the older the delinquency of the debt, the more likely the borrower has to get a better (lower) settlement.

Another reason why it’s helpful to know who owns the debt is that if the original creditor sold it to a collection agency, the collections agency buys it for pennies on the dollar. Knowing this means the borrower could offer a much lower settlement that ends up being a win for both parties. For example, an original creditor sells a $10,000 debt to a collection agency, and the agency buys it for $1,000. The agency stands to make a $9,000 profit if it can collect the full amount from the borrower. However, if the borrower knows that the collection agency bought the debt from the original creditor, they could negotiate a settlement starting at around $2,000. This lowers the debt by $8,000 and the debt collection agency doubles their money.

Be Careful What Information Is Shared

When talking to any creditor, it is important to be careful with what information is shared and what is agreed to in the conversation. Many calls are recorded and can be used in a court record if a lawsuit ensues. Therefore, it is best for the borrower to not say too much or agree to anything over the phone. When talking with a creditor, it is okay to acknowledge the options without agreeing to them and insist that all options be sent to the borrower in writing before further action is taken.

It is possible that creditors will ask for something in return. For example, they may want the borrower to have a cosigner in order to waive the statute of limitations for a debt collection, charge a higher interest rate, extend to longer payment terms, secure the loan, or even waive the legal right to sue the creditor.

Preparing for the Call

Before calling the debt collector, the borrower should identify his or her financial bottom line and try to identify the creditor’s bottom line. PFMs, make your clients aware that debt collectors are known to not always be honest in their tactics in collecting the debt which is illegal under the Fair Debt Collections Practices Act. 

How to Start the Negotiation

When talking with the debt collector, the borrower should explain their financial hardship and make an offer to resolve the debt (or payoff) at a very low rate. The older the debt, the lower the settlement offer should be in the negotiation process.

For older debts, it might be an option to pay off the entire settlement by offering a lump sum, or a payment plan to reduce the payments and the total amount owed. The borrower should request the original creditor to report the debt as “paid as agreed” on his or her credit report. If the credit report says “settled” it’s often viewed more negatively than the original negative mark and will not improve a credit score.

Final Negotiation Tips

  • If it doesn’t seem like the borrower is getting anywhere, encourage your client not to give up. Being persistent and firm but staying professional is key.
  • Advise your client to always find the person with the authority to make a decision. If necessary, tell your client to ask to speak to management and work up the chain of command.
  • Advise the borrower to keep a written log of his or her negotiation efforts and communications. Tell your client to note the date, time, and substance of each conversation, the person he or she spoke with, and each time the creditor contacts them.

When a Settlement Is Reached

  • The borrower should follow up with a letter stating who he or she talked with and what was agreed upon.
  • Tell your client to be sure the letter is sent by certified mail with the receipt requested.
  • The client should not make any payments until he or she receives something in writing confirming the terms of the agreement.
  • All documents related to the account should be saved in a secure space and easily accessible.

Photo by Marcus Aurelius,, CC0