Can I Settle Debt with a Debt Collector?

If you’ve just received a letter from a debt collector, it might feel a bit scary. But don’t worry, you’re not on your own. In fact, over 170,000 people come to our website every month to learn about dealing with debt.

In this article, we’ll answer these important questions:

•  How to find out if the debt is really yours. 
•  How to ask the debt collector to stop bothering you.
•  How to make a plan to pay off the debt.
•  How to talk to the debt collector about paying less than you owe.
•  What to do if you can’t afford to pay.

Many of us know how it feels to get letters from debt collectors. It can be very worrying. But remember, we’re here to help you. With the right information, you can get back in control of your money.

Let’s start learning how to deal with debt collectors.

How can I get out of debt with a debt collector?

There are four strategies to clear debts with a debt collector once they have proved you owe the debt. You could:

1. Make a full payment to clear the debt
2. Agree on a payment plan with the debt collector
3. Offer a debt settlement figure to clear all of the debt
4. Arrange an external debt solution

You may not be able to pay off the full amount in one go. Do not worry if that is the case. Although the debt collector requests a full payment, they expect debtors to ask for a more affordable payment plan to clear the debt gradually. 

You’ll need to effectively negotiate a payment plan that you can afford. Do not commit to a plan that you know you cannot afford and will probably default on, or your debt situation could worsen. 

How to negotiate with a debt collection agency

You can negotiate your payment plan with a debt collection agency, so you only have to make smaller monthly repayment, which prevents you from experiencing financial difficulty. It is possible to negotiate over the phone, via email or in writing. 

The aim of the negotiations should be to secure a payment plan that you can afford while maintaining essential living expenses. Thus, before you start your negotiations, you should create a budget that outlines all of your income and essential expenses, which will also show how much disposable income you have each month. 

Even if you know you have little disposable income, you should still make a budget and provide it to the debt collector. You could prove you are not able to make any monthly payments right now and could even negotiate a token payment of £1 per month until your finances improve. 

Calling for debt repayment negotiation can be daunting, so here are some quick tips:

1. Call with pen and paper to hand
2. Take the representative’s name and note the time and date
3. Take notes of everything they say
4. Keep your budget to hand
5. Always ask them to clearly explain any terms you do not understand. They must explain these.
6. If they get angry or aggressive, hang up and call back to speak to someone else
7. Be firm but never be rude
8. And never accept an unaffordable repayment plan

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How to dispute a debt with a debt collection agency

You should dispute a debt with a debt collection agency by sending them a prove the debt letter. This is a letter that requests the debt collection company provide you with evidence that you are in debt. It requires the debt collector to provide concrete evidence, such as a copy of the signed credit agreement you have supposedly defaulted on. 

I have a free prove the debt letter template you can download. If they cannot prove the debt, you have no immediate obligation to pay. 

It is sometimes worth sending a prove the debt letter even if you are aware of the debt they are referring to. The company may have lost evidence of your agreement or find it difficult to prove the debt, which could get you off the hook or even just give you some breathing space to think and get debt advice. 

Questioning debt validity is one of your rights as a debtor, so don’t let a debt collection company put you off.

Can I settle debt with a debt collector?

Making settlement offers to a debt collector at any time is possible, but there is no guarantee that the debt collector will accept your offer. 

Negotiating with collectors can feel intimidating, so I recommend writing to them where possible. I have a free letter template you can use to firmly but fairly make a full and final settlement offer to your debt collection company. 

If a debt collector agrees to settle the debt with you for a lump sum, you must get this in writing before making the payment. Not getting written confirmation of the agreement could result in the debt collector suggesting no agreement was in place, and the lump sum is simply taken off the total owed, leaving you with the remainder of the debt to pay. 

What is settling a debt with a debt collector?

Debt settlement was listed as one of the four ways to get out of debt with a debt collector. This is when you agree to make a lump sum payment to clear the debt, but the lump sum is less than the actual worth of the debt. It is used to get out of debt instantly and save some money in the process. 

A debt collector might be willing to accept a lump sum to clear the debt if they bought the debt from another company. In many cases, debt collectors purchase debts for much less than they are worth, so a significant lump sum payment will still make them an instant profit. 

If you can afford it, this method of instant debt clearance will get the debt collectors off your back the quickest.

What percentage will debt collectors settle for?

On average, debt collectors will settle a debt for 30-90% of the total value of the debt. So if your debt is worth £5,000 you may be required to pay a lump sum between £1,500 and £4,500 to clear the debt. The amount your debt collector is willing to accept will be based on your financial situation and how much they paid for your debt. 

How to negotiate a debt settlement with debt collectors

Negotiating a debt settlement is similar to negotiating a payment plan. You should base your offer on what you can reasonably afford without causing financial hardship. This may involve disclosing your savings to the debt collector. 

The danger with making a full and final settlement offer based on your savings is that if the debt collector rejects your offer, they are now aware of your savings and could be less likely to agree to a reduced payment plan.  

Make a debt settlement offer with my free letter template

I understand that it can be difficult to call your debt collector and make a full and final settlement offer. So I’ve made it easier. Download my free full and final settlement letter template, add your personal details and pop it in the post. 

And don’t forget you can find other resources and guides to help you fight back against debt collectors. 

Is it smart to settle with a debt collector?

Settling a debt can be a smart way to get out of the debt and save some money, but it might not be the most advantageous debt solution for you. You will need to start evaluating debt settlement options or discuss your situation with a debt charity for the best way forward.

There could be other debt solutions that are more advantageous, especially if you have other debts and arrears. You must get debt advice to understand all of your options and choose the right debt solution.

Free and confidential debt advice is available with UK debt charities. 

Is it bad to settle a debt with a collection agency?

Although settling a debt with a debt collection agency can save you money, it also has its drawbacks. The underpaid debt will be recorded on your credit file and negatively affect your credit score. As a result, it can be more difficult to access further credit until you have rebuilt your score. 

Can I get a debt solution?

Your debt collector will have to offer you a few different repayment plans for you to repay your debt to them. But if you can’t afford any of them or have other debts that you are struggling with, what do you do?

The answer might be a debt solution.

There are several different debt solutions available in the UK, so I recommend speaking to a debt charity as soon as possible. Their advisors will be able to look at your finances in detail and help you work out which debt solution will work best for you.

I have linked a few charities that offer these advisory services for free below.

Debt Management Plan (DMP)

A DMP is an informal debt solution that lets you pay off your debts via a consolidated payment each month.

Because it is informal, it is not legally binding so you are not tied into a DMP for a minimum number of payments.

Individual Voluntary Arrangement (IVA)

An IVA is a formal agreement between you and your creditors. You agree to pay a monthly sum that is distributed amongst your debts, and your creditors agree not to contact you during your IVA.

IVAs typically last for 5 or 6 years, and any outstanding debt is wiped off when it ends.

Keep in mind that IVAs are not suitable for everyone. You need to owe several thousand pounds to more than one creditor to be eligible. You also need to demonstrate that you have some disposable income every month.

Trust Deed

IVAs are not available in Scotland. Instead, you will need to opt for a Trust Deed.

Trust Deeds work in the same way as an IVA – you pay an agreed sum each month that is shared amongst your creditors, they can’t contact you, and any leftover debt at the end of your Trust Deed term is written off.

Debt Relief Order (DRO)

A DRO is a good option for those facing financial hardship with no assets and little income.

For 12 months, you make no payments, but your creditors freeze your interest and don’t contact you.

If your finances haven’t improved during this year, you may be able to write off your unsecured debts.

Bankruptcy

If you have debts but no realistic possibility of ever paying them off, you may need to declare bankruptcy.

Bankruptcy has an unfair stigma attached to it as it may be your only way of getting a financial fresh start. That said, it is a serious financial situation that should not be taken lightly.

Sequestration

Sequestration is the Scottish version of bankruptcy.

If you have little income and no valuable assets, you may be able to apply for a minimal asset process bankruptcy (MAP). A MAP is a quicker, cheaper, and more straightforward version of sequestration, so worth considering.

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Other Debt Collectors to look for on your Credit Report

There are hundreds of debt collectors in the UK and they each collect for different companies.

It’s surprisingly easy to not notice that you’re in a debt collector’s crosshairs.

I’d suggest you spend time checking your credit report. If a debt collector purchases any of your debt, it will appear on your credit report.

Some of the biggest to look out for include Cabot, PRA Group, and Lowell.

So if you see anything relating to their names, then you’ll need to investigate further.

Debt Settling Checklist

Here is a quick list of the process of debt collection from when you get your first letter, to having the debt paid off.

Keep in mind that this process will look different if you opt for a debt solution. If you would like an idea of the process if you opt for a debt solution, you can contact one of the below debt charities for free.

• Verify the debt: Once you receive the first letter from the debt collection company, you need to verify that you are liable for the debt. You can do this with my free ‘prove it’ letter template. Don’t skip debt validation.
• Wait for proof: You don’t have to pay for a debt that can’t be proven to be yours so wait for evidence that you are liable for it.
• Pay: If you can afford to pay off the debt quickly, I recommend doing it as soon as possible after the debt collectors have provided you with their evidence.
• Negotiate a payment plan: If you can’t afford to pay for the debt in one go, you can opt for one of the debt collection company’s repayment plans. Some companies are even open to further negotiation.
• Wait for repayment plan agreement letter: I recommend waiting until you receive written confirmation that the debt collection company have agreed to these new terms before making any payments. This will make it harder for the debt collection company to argue with you about the status of your debt down the road.
• Stick to repayment plan until debt is paid off per the agreement.

Where can I get professional advice?

If you are dealing with a debt collection company or need some help with money management, I recommend speaking to a debt charity.

There are several charities and organisations in the UK that offer free debt counselling services and free financial advice. Their advisors will be able to walk you through your options and find the best solution for you.

• StepChange
• National Debtline
• Citizens Advice
• Debt Advice Foundation.