How to Make Payment Arrangements with a Debt Collector

A call from a debt collector may leave you feeling like you have few options and few resources for repaying the debt and improving your finances. Don’t let aggressive or hostile debt collectors talk you into a repayment option you can’t afford! You have the protection of the Fair Debt Collection Practices Act, which works to end abusive debt collection practices by debt collectors.

Paying off a debt in collections will stop the phone calls, allow you to start repairing your credit, and improve your chances of approval for credit cards and loans in the future.

If you’ve been contacted by a collection agency, here are your first steps to finding a repayment plan you can afford.

Make sure you really owe the debt

Mistakes happen! Don’t be intimidated, coerced, or shamed into accepting a debt that you don’t owe. Tell the debt collector you want to investigate their claims. You should ask for the original bill or debt holder’s contact information (i.e. the company claiming that you owe them money). Next, contact the company or lender or review your credit report to make sure all the information about the money you owe is correct.

If the collector has called you in error, notify them, as well as all three major consumer credit bureaus to make sure the mistake isn’t repeated. If you still have questions about whether or not you owe a debt, you may need to contact a credit counselor and a lawyer.

If you discover you do owe the debt and you can’t pay it in full with cash on hand or cover it through restructuring debt or a new loan, then you’ll need to make one of two payment arrangements with the debt collector: a settlement or a monthly payment schedule.

A settlement

Paying a settlement means paying part of the total you owe and having the collector consider the account paid in full. You may be able to negotiate paying a settlement that’s a fraction of the total owed, sometimes as low as 50% or less of the original balance. A debt collector might agree to this low percentage because they purchased your debt for pennies on the dollar, so as long as they collect more from you than they paid, they still make a profit.

If you pay off your debt through a negotiated settlement, you’ll pay in cash, i.e. money available in your checking account right now, all at once. You may still owe taxes on the debt amount that is forgiven because the IRS considers this as “income.”

A settlement is the fastest way to resolve a collection and often the most cost-effective; however, it may not be ideal for your credit score since you won’t be paying off the entire original debt and that will remain on your credit report for several years.

A payment plan

Although not legally obligated to consider or accept a payment plan, some collections agencies will. Whether or not they accept this form of repayment may depend on the length of time the collector has held the debt. Agencies typically only hold on to debts for six months, so they’re more likely to accept a repayment plan within the first month or two of receiving the account and contacting you.

If the agency is open to a repayment plan, review your budget and expenses to determine how much you can afford to pay without causing yourself to go further into debt on other bills. Don’t be bullied into agreeing to pay more than you can afford.

It’s important to know that, even if they agree to a monthly payment plan, they can change that agreement or file a lawsuit for the remaining amount owed at a later time. Make sure you get all payment plan details in writing and signed.

Statute of limitations

Before making a payment arrangement of any type, confirm that the statute of limitations hasn’t passed in your state for collecting on the debt. This is the length of time a debt is legally enforceable, and it varies by state. When you make a payment arrangement on a debt, it restarts the statute of limitations, which extends the time a collector can pursue or sue you for payment.