17 Sep 2020

How to negotiate a debt settlement with a collection agency

When you’re in debt, it can often feel impossible to speak with the companies chasing you for money, particularly if you’re being contacted by debt collection agencies.

The good news is that you can negotiate a debt settlement with a debt collection company or any other creditor without the help of specialist companies or a debt management plan. Most often, the hardest thing is being brave enough to pick up the phone.

If you think that you do not owe the money that these companies want you to pay or if you think they have had a mistake, you can dispute the debt yourself with a few tips from us. Alternatively, why not pick up the phone and speak to Consumer Law Barristers about our expert legal advice and how we can help you.

How to negotiate a debt with a collection agency

If your debt has been sold to a collection agency, the good news is that you can still negotiate a debt settlement.

You can negotiate debt with a collection agency over the telephone or via letter. You can negotiate smaller monthly repayments, or make an offer to pay off your debt in one lump sum at a reduced cost.

Before contacting the debt collector, you may wish to prepare an income and expenditure form. This will help the debt collector to consider your offer. Preparing this statement in advance will help you to make an offer which is likely to be accepted.

Understanding your budget will also help you to prepare for speaking with your creditors. Before you enter into any negotiation, you should have a clear idea on what you can afford and the maximum figure you are willing to to offer. This will prevent you from being pushed into a settlement you cannot afford.

You should also consider the terms of any offer you are making. Your options include making one reduced ‘lump sum’ payment in full and a final settlement, to pay a reduced sum over a short period of time (for example 6 or 12 months), or to set up a low ‘token’ payment until you are able to afford to pay more.
If you do not have much disposable income, you can still negotiate with your creditors. Preparing an income and expenditure calculation will help you to convince your creditors to accept a very low payment until your circumstances improve.

Once you are ready to speak with your creditors, try to follow these simple tips:
– ensure you have pen and paper to hand so you can make a note of the conversation and any solutions you reach. Remember to take the full name of the agent you speak to.
– the person you speak with will be nice to you, not aggressive – if they are then end the call. Call back and speak to a different agent (repeat if necessary – until you find a nice one)
– ask the agent to speak slowly and clearly – a firm must communicate with you in a way that is fair and not misleading
– if you are at all confused about the terminology they are using, ask them to explain in a way that you understand
– be firm but never rude or aggressive – conflict will get you nowhere, but having a good idea of the settlement you want to reach will normally bring good results.

It’s important to remember that debt collection agencies want to work with you to reach a settlement; you can often negotiate a good reduction in what you owe.
You should never feel bullied or pressured into paying more than you can afford. If you feel like that, you politely, but firmly, should end the conversation.

Will a debt collection agency reduce the amount I owe?

It is very normal to feel daunted by the idea of negotiating with collection agencies, or even speaking with them at all. Remember: it is in their best interest to reach an agreement with you. These companies have strict rules and guidelines about how to treat you fairly. If you feel these rules have been broken, the company must – and will – take your complaint very seriously.

Debt is purchased from creditors at a massively reduced cost (often as little as 1p for every £1 of debt). This means that debt buyers are very willing to settle for a fraction of what you owe them. The alternative is making small payments over a long period of time, which is less attractive for them.

Debt collection agencies are regulated by the Financial Conduct Authority (FCA). The FCA have set guidelines for how debt collectors must treat customers who are in arrears or have defaulted accounts. A brief understanding of these rules may help you to assert your rights and reach a good debt settlement.

The FCA dictates that, when you speak with any creditor or debt collector, they must treat you fairly, carefully consider any information you give to them and take into account any exceptional circumstances beyond your control.
Debt collectors must not be rude, aggressive or threatening in their manner, put you under any undue pressure, imply that anything you say is not true or threaten to take action they are not currently able to take. Examples may include repossessing your home or telling your employer about your debts. The FCA also makes it very clear that a firm must not refuse negotiations to a client who is developing a repayment plan.

Can you dispute debt sold to a collection agency?

You can dispute debt once it has been sold to a debt collection agency if you do not agree with what they say you owe. If the debt collector claims they own your debt, they must deal with your dispute themselves and should not tell you to contact the original creditor instead.

It is very important to know that you cannot dispute the debt just because it has been sold. This is not true and you should ignore anyone who tells you that debt cannot be sold.

You can dispute a debt for any of a number of reasons. The Consumer Credit Act sets out various information which you are well within your rights to ask for, and what happens if the debt collection agency cannot provide this information? You may have a right not to pay.

You can dispute debt sold to collection agency for many reasons including:
● you don’t believe that the debt belongs to you
● you think the amount they say you owe is wrong
● you aren’t satisfied that the agency owns the debt
● you did not understand you were entering into a credit agreement or you didn’t understand the terms of the agreement
● you don’t remember signing a credit agreement (electronically or in person).

How to dispute a debt with a collection agency

If you are planning to dispute debt, it is always a good idea to do this in writing, either in a letter or via email. You do not need to write to the registered office, normally the best address is the one that is listed for complaints.

You should set out your dispute very clearly. Do not go into too much detail or include any unnecessary ‘evidence’ in support of your dispute. Do not feel tempted to use overly complicated language which will make your dispute unclear. Set out your points as plainly and as concisely as possible – remember that your letter will be read by a human who may well be hot / bothered / hungry and will thank you for making their life easy.

When disputing debt, you should ask the debt collector for evidence of the account including (where relevant) a copy of the agreement, statements to show the balance due, proof that the debt has been sold or proof that your account has defaulted. Do not be tempted to ask for more evidence than is necessary as this will likely complicate matters.

The company should respond to your dispute clearly and in a timely manner. If they do not agree with your dispute, they must tell you why. Where the company does not agree with your dispute, you can refer this to the Financial Ombudsman Service (FOS) who will look at all of the evidence and reach an impartial decision.

The most important thing to remember is that if you are being chased by debt collection companies, you should always make sure that you only pay what they can prove you owe. Consumer Law Barristers provides expert and affordable advice to make sure you never pay more than you really have to.