How to Negotiate with a Collection Agency

Everyone falls behind in payments from time to time. No matter the reason, once this happens the last thing you want is to have the amount referred to a collection agency. When that happens, you lose the ability to deal with the original company because they sell their bad debt at a heavy discount to the collection agency.

Ideally you can act before the debt is sold and negotiate a discounted payoff that saves you the aggravation of dealing with a collection agency. If not, you will need to know how to negotiate with a collection agency. Here are some tips.

Collection agencies make their money by collecting more from you than they paid for the debt originally. More important, they know they will never collect on some of the debts they buy so they have to make up that lose from.....you!

To negotiate with a collection agency you have to appreciate their motivations:


  • Money - They acquired your debt with the intent to make money.

  • Time - They longer they hold your debt the more interest it costs them on their money (what they paid for the debt).

  • Success - They have factored in a number of debts that will never be collected. To do a deal with you offsets another they will not be able to close.

That is all you have to work with when trying to negotiate with a collection agency.

The best strategy is to try and balance time and money in a fashion that the person on the phone becomes motivated to work with you. What will not work are tactics designed to make them empathetic such as a sad story about your troubles, how you were wronged, or the potential of future business if they work with you.

You will be dealing with an accountant type of person who is not associated with the original company or lender. They have no interest in you or your future actions. They want your money, they want it now, and they are very practiced in what they do.

Usually the person you are dealing with is on a commission or bonus plan. So you need to find a way to get them a bonus without paying too much.

What to do:

First don't let your debts go to collection agencies.

Second If you failed the first step, understand that the credit agency will typically buy the debt at the discounted face value of the debt excluding interest or penalty charges. That means they have paid something under 50% of the original cost of your debt. That is their cost basis. They will have handling costs and the burden of other debts they can't collect on to add to their cost basis so I would assume their 'all-in' cost will be around 50%. You can expect to pay more than this amount to settle with them.

Third Your leverage is time and cash. Determine how much cash you can afford to pay immediately to resolve this matter. That amount will be your best and final offer.

Fourth Approach the contact at the collection agency:


  • Start a dialogue trying to establish some sort of relationship on the phone.

  • Work your way around to saying that you want to work something out to get this off your credit rating. Your real goal is to resolve the obligation but having a red herring on the table makes it easier to back into your offer.

  • Try to get the interest and penalties waived before discussing the settlement.

  • Offer 50% of what you owe in principal.

  • Let the negotiations begin.