If you are behind in paying some bills and are considering negotiating with someone bugging you for money, what are the factors you need to consider as you prepare for and then talk with them? We have discussed elsewhere the need not to “give away” information carelessly. In this article we discuss the negotiations more from the point of view of the collector. You’ll need to know this as you decide what to do.
As simple as it seems, the first question is whether you are dealing with an original creditor or debt buyer, or debt collector. Their perspective makes a lot of difference. With that in mind, we’ll look at negotiations with the three categories of counter-parties you will encounter: original creditors, debt buyers, and actual debt collectors (firms retained to try to collect money for the original creditor).
Original creditors are, usually, the businesses that actually made a deal with you in the first place, typically via a consumer transaction. Dealing with original creditors, because they are lots of different businesses in the business of doing whatever they do, is much less predictable than dealing with debt collectors or buyers, who generally have standardized procedures for talking to you.
Original creditors are in business to do business, and not to collect money. Depending on the size of the company and the person to whom you are talking, trying to collect money may be the worst part of the person’s day. He doesn’t want the bother, and spending time collecting money could be taking away from much more important tasks. Also, every business owner is aware that the business’s reputation could be hurt either by being too aggressive or by provoking harmful responses.
Even in larger companies (excluding auto sales, which are designed with collections in mind), the person talking to you will have other considerations than just squeezing the last dollar out of you. Most original creditors – even banks and credit cards – don’t want to sue you, so the chances are good that you won’t get sued without plenty of warning. Companies that are not set up to litigate normally fear and avoid it – with very good reason – and an original creditor must also be concerned about reputation with other customers and clients in general.
As a general rule, original creditors would rather not do things to damage your credit (although the bigger the business the less they care about this in my experience), and most small ones might not even be set up in a practical way to do so. On the other hand, because original creditors are not in the business of suing and do not think of the bills strictly as numbers, it can be difficult to get them to stop thinking that you must pay all the money you owe, although people will have different perspectives on this for lots of reasons.
Depending on how their business is doing, original creditors could be much more or less aggressive in chasing you. For a smaller company, chasing you is difficult and impractical, and at some point the owner will settle for far, far less than you owe just to put the experience behind him or her. If they do sue you, chances are pretty good they’ll have what they need to prove you owe the money, but not necessarily the resources to keep after you to try to collect the judgment.
Debt buyers are pretty much the opposite of original creditors. They really have no other business than collecting money other people earned. Whereas the original creditor may have budgeted primarily for production and sale of goods, and been surprised by having to try to collect, debt buyers budget exclusively for collection and have no other significant costs. Nor do they have the same concerns about public opinion – they aren’t vulnerable to market forces. On the other hand, they are further from the original transaction and often have trouble obtaining the records they need to beat you in court if push comes to shove.
What all that means is that whereas original creditors are somewhat reluctant to negotiate with you but sometimes have to for practical reasons, debt buyers are all about negotiating with you, and have a harder time winning, but are more willing to sue you anyway. They are designed to extract money from you, in other words.
A debt buyer can do you some harm on your credit report by reporting your debt, but in reality the main harm will have already occurred if your original creditor reported the debt. Debt buyers cannot clean your record of credit damage caused by the original creditor, so you can only negotiate to get them to stop reporting you.
Debt buyers purchase debts for widely different amounts, depending primarily on how old the debt is. Exactly how the figure is determined is a closely guarded secret, but the purchase is usually made by auction of large numbers of debts packaged together. Not all debt buyers are willing to sue you under any conditions, incidentally. They will telephone you endlessly and then, eventually, sell the debt to another company. And some debt buyers routinely sue without even any kind of warning. The biggest of the debt buyers seem to call for a while and then sue.
If you are negotiating with a debt buyer, there are a number of things you need to bear in mind. For a full discussion of that, you will want to get the Debt Negotiation Dashboard. Bear in mind that while debt buyers are less equipped to sue you, they are more ready and willing to do so, than most original creditors. But since they are in the business of extracting dollars from people without a lot of money, they can take a more realistic view of how much you can pay if you want to. And remember, you can negotiate to get them to stop hurting your credit report, but you can’t get them to wipe clean the debt from whatever the original creditor did.
Actual Debt Collectors
Actual debt collectors can negotiate with you, but they draw their real authority to do so from the original creditor and will have to take any request for a deep reduction in amount or change of terms back to the original creditors (although they will have some discretion over smaller changes). Debt collectors are more “numbers” oriented, however, so it might be possible to get them to accept an offer that the original creditor previously turned down.
Usually, when the bill is sent to the debt collector, the original creditor will stop negotiating with you – so if you call up and want to talk about the debt, for example, they will refer you to the debt collector. In that situation, the debt collector will keep a significant amount of anything you pay – 25% or more is not unusual. What will frequently happen, however, is that the debts will eventually be returned to the original creditor. If you can time that correctly, you might have an opportunity for a steep discount, because the next step is to sell the debt for a small fraction of its nominal value or to let it go entirely. The advantage of catching the debt before it gets sold, of course, is that you can make cleaning your credit a part of the deal.