Household debt recently hit a record high and roughly 64 million people have debt in collections which can hamper credit, financial, physical, and mental health for years. TrustPlus Personal Financial Coaches Dametria Douglas and Shanick Yermenos roleplay what to say to a debt collector to reduce and eliminate debt.
Roughly 64 million people have debt in collections including many of our clients.
This Mental Health Awareness Month, we spotlight how collections debt can hamper worker health, productivity, and credit for years — and how to negotiate with debt collectors to reduce and eliminate debt.
TrustPlus clients are like most workers in the U.S., often living paycheck to paycheck, increasingly turning to credit cards and other forms of debt to maintain their standard of living amidst inflation and rising interest rates.
Household debt hit a record high at the end of 2022 according to the Federal Reserve Bank of New York. Meanwhile personal finances are workers’ top concern and source of stress these days per CNBC and Momentive.
This is bad news for worker financial, mental, and physical health and for employer profit, productivity, and impact.
High levels of debt are associated with increasing risk of stress, depression, and high blood pressure according to Sweet et al writing in Social Science & Medicine in “The high price of debt: Household financial debt and its impact on mental and physical health.”
Modern debt collection methods including aggressive phone calls, texts, and social media messages don’t help (see University of Cincinnati Law Review “Why is a Debt Collector Texting Me? The Modernization of Debt Collection Practices” by Emily Schmidt).
Wise employers increasingly understand the connections among financial and mental health, productivity and profit, and the perplexing power of debt as a catalyst for both wealth creation and catastrophe. So they’re exploring meaningful steps like offering Personal Financial Coaching to help their employees reduce debt and the stress that goes along with it.
TrustPlus Personal Financial Coaches, Dametria Douglas and Shanick Yermenos, often roleplay with clients about how to talk to a debt collector to reduce and eliminate the debt, answering questions like, “what do I do if I can’t afford to pay,” what should I say,” “how do I talk to debt collectors about my situation?”
In short: identify what you can pay based on your budget. Offer a lump sum, if possible, but, if a series of smaller payments per month work best for your budget, then that is ok, too. Often, you can negotiate an amount that’s less than what you ultimately owe, and it will make enough of a dent in the debt that the collector agrees to forgo the rest.
Based on helping clients reduce debt, strengthen credit, and build savings at businesses and organizations of all sizes nationwide, Dametria and Shanick share 11 tips for negotiating with a debt collector.
Then they roleplay in Oscar-worthy performances and the lightly edited transcript below, putting into practice some of their tips for debt settlement negotiations.
Tips For Debt Settlement Negotiations
- Before contacting a creditor or collection agency to negotiate a settlement, always make a budget of your monthly income and expenses so you know what you can afford to pay. A TrustPlus Financial Coach can help you navigate this step. Whether you are entering into a payment plan, or planning a lump sum payment, you never want to agree to an amount that you cannot afford.
- When dealing with a collection agency (not the original creditor), NEVER give any information that the collector should already have: the name of the original creditor, the date it became delinquent, etc. The only information you should provide is your name, and the reference number for the collection from the collection letter.
- Keep detailed notes. Record the agent’s name, the date, the time, and specifics about the conversation. Some collectors have a confirmation number for the call. Get it!!! If you ever go to court you can point to that number and request they play the call as proof of your willingness to settle, or your settlement agreement.
- Dealing with debt collectors can be stressful, but remember to stay pleasant and calm. Always use the name of a real person at the collection agency if possible. If you are first talking to a receptionist, ask them to give you the name of the person you will be talking to so you can greet them upon being transferred.
- Be sincere, but direct and to the point. Give the collector a chance to offer suggestions in case they are actually willing to offer a better deal than you expect. Ask the agent what the current settlement amount is before going into negotiations. If what they offer fits your budget, great! If not, have your budgeted offer in mind but counter offer a little lower than that amount in case the collector does not accept it outright or wants to negotiate for more. Again, never agree to an amount that your budget cannot afford.
- Once you have agreed on the amount, decide on a payment plan or a lump sum payment. Example of Monthly Payment: $1,000 is the agreed upon settlement, but your budget only has a surplus of $50/month, negotiate payments of $50 a month for 20 months. Have them confirm that the $1,000 settlement offer will not incur more fees or interest; and that the amount won’t keep increasing after you make your first payment. Example of Lump Sum Payment: $1,000 is the agreed upon settlement, ask for this offer to be provided in writing.
- Get the agreement in writing BEFORE you make any payments; whether they are monthly payments or lump sum payments.
- NEVER give a bank account number! A collector will try to press you for this but stay firm. Inform them that once you receive the agreement in writing, you will send a money order to the address they provide you for payment.
- Once an offer and payment method has been agreed upon, go for it all! Ask them to delete the negative info from your credit report once the account is paid for. If they won’t, ask them to report the account as “PAID” instead of “settled” once it is paid off. If they do not agree to this, that is fine. Do not argue with them over this part.
- If they refuse your offer, be assertive and reiterate that “for the record” you really want to pay, but can only afford what you have offered.
- If they still refuse to accept the offer, end the call and try again on a different day and time to speak with a different customer service representative. Do not feel obligated to stay on the phone with them if they are not being reasonable.
How to Negotiate with a Debt Collector