A letter from a debt collector may give you information about a debt the collector says you owe and explain how to dispute it. If you are considering a settlement, the Consumer Financial Protection Bureau (CFPB) says to confirm the debt, calculate a realistic payment plan, and make a proposal to the collector.
What to have in front of you
- The debt collector’s letter and any validation information you received
- Your monthly take-home pay and monthly expenses
- The amount you could realistically afford to pay each month
- Any repayment or settlement plan the collector has put in writing
Check the debt information
The CFPB says debt collectors must give you certain information about the debt they say you owe when they contact you, or provide it within five days of first communicating with you. Generally, they must give you this validation information in writing, either by mail or electronically.
The validation information can help you figure out whether you owe the debt. It also provides information about how to dispute the debt if you do not owe it.
Take time to look at the information the collector gave you. If you are unsure who you owe money to or how much you owe, you can ask the debt collector for more information. The validation information can help you decide what to ask and whether you want to dispute the debt.
Work out a realistic amount
The CFPB says that once you confirm you owe a debt, you can pay it in full or propose a repayment plan to the collector. If you want to make a proposal, start by looking at your current financial obligations.
Write down your monthly take-home pay and your monthly expenses. Include the amount you would want to repay each month. Consider how much you can realistically afford while keeping up with your other bills.
The CFPB also suggests trying to leave some income for unexpected expenses and emergencies. Falling behind on other bills, even while paying this debt, could cause more problems. The CFPB says not to pay more than you can afford.
Think about the total amount you would be willing to pay to settle the entire debt. A proposal could involve one payment or a series of smaller payments. Having both a monthly amount and a total amount in mind can help you explain your plan to the collector.
If you are struggling to make a budget, a nonprofit credit counselor can help you create one and work with collectors.
Consider your payment options
Your options depend on the debt and what you decide you can afford. The CFPB lists paying in full and proposing a repayment plan as options after you confirm you owe the debt. A settlement proposal could be for one payment or smaller payments over time.
If you have more than one debt with the same debt collector, you can direct the collector to apply your payments to a specific debt. The CFPB says debt collectors are not allowed to apply a single payment to multiple debts that you are disputing.
You can also consider getting help from a credit counselor or an attorney when working through a proposal.
Explain your proposal to the collector
When you talk to the debt collector, explain your financial situation and the plan you want to propose. You can discuss the amount you are willing to pay to settle the entire debt and whether you propose one payment or a series of smaller payments.
The CFPB says you may have more room to negotiate with a debt collector than you did with the original creditor. You can also work through a credit counselor or an attorney.
If you and the collector agree on a repayment or settlement plan, get the plan and the collector’s promises in writing before making a payment. Those promises may include stopping collection efforts and ending or forgiving the debt once you have completed the plan.
Be careful about settlement offers from companies
The CFPB advises avoiding companies that charge money in advance to settle debts. It says dealing with debt settlement companies can be risky, and some promise more than they can deliver.
Certain creditors may refuse to work with a debt settlement company you choose. In many cases, the company may not be able to settle the debt for you. You can consider the options listed above when deciding how to approach the collector.
Know your communication rights
The CFPB says there are rules about how and when debt collectors can communicate with you. The Fair Debt Collection Practices Act prohibits repeated or continuous telephone calls or conversations made with the intent to harass, oppress, or abuse you.
If you are having an issue with debt collection, you can submit a complaint to the CFPB.
Where this comes from
Consumer Financial Protection Bureau: “How do I negotiate a settlement with a debt collector?”