Utilizing these ten tips should dramatically improve your odds of negotiating a favourable settlement.
In certain circumstances you might be able to eliminate your debt by negotiating a one-time lump sum settlement for less than what you owe as settlement in full.
In this article I am going to share with you ten tips for negotiating a settlement. If you utilize these tips then you will be in a much better position to negotiate a favourable settlement.
1. Do not commence negotiations until you have settlement funds available
If you negotiate a settlement with your creditor--or it authorized collection agent--then your creditor will want to receive the settlement funds very quickly.
Accordingly, there is no point initiating settlement discussions with your creditor or its authorized collection agent unless you can have the settlement funds available in about five to ten business days.
2. Do not inform the collector that you need to remove this account from your credit report
If a prospective lender has informed you that you must remove an item from your credit report before you can receive a loan or credit then it is important that you do not disclose this fact to the collector.
If you do disclose this information then you should expect the collector to demand payment in full. This is the fastest way to undermine your bargaining position.
Ideally, you should not convey a sense of urgency when you are communicating with the collector.
3. Take the position that you cannot afford to make payment in full
If you want to obtain a favourable settlement then you should take the position that you cannot afford to make payment in full.
If you have other unpaid accounts then you can inform the collector that you have other creditors demanding payments from you.
This will put the collector in the position of competing with another creditor for your limited funds available for a settlement.
4. You should make an oral, and not a written, settlement offer
Ideally, when you make a settlement offer you should do so verbally and not in writing. If you make a written settlement offer then you run the risk of restarting the clock on the limitation period on your debt.
You should avoid restarting the clock on the limitation period on your unpaid account because if your creditor does not sue you before the expiry of the limitation period then you will be in a position that you can avoid paying a penny to your creditor.
5. Your settlement offer should be for 25 percent of the outstanding balance
As a general rule, I recommend that you offer to settle an unpaid account for 25 percent of the outstanding balance.
There are three scenarios where you will likely have to offer more than 25 percent of the outstanding balance to obtain a settlement:
Accounts with balances under $500
Accounts where your creditor has sued you
Accounts where your creditor has obtained a judgment against you
6. Four options for responding to a counter-offer
Your creditor will respond in one of three ways to your settlement offer.
Accept your offer
Reject your offer
Make a counter-offer
If you receive a counter-offer then you have four options in terms of how you respond to it.
Accept the counter-offer
Repeat your original offer and say take it or leave it
Increase your original offer by five or ten percent
Break off negotiations and try again in a few months
If you increase your original offer by a small amount then you are doing so in the anticipation that your creditor will reduce the amount it is seeking.
I refer to this strategy as "climbing the ladder". Ideally, if you agree to offer more monies to settle your account then your creditor will show some flexibility and be willing to lower the amount it is seeking.
Depending upon your situation you might only be prepared to increase your offer once. In some instances a consumer might be willing to increase their offer a second time.
One of the advantages of utilizing the "climbing the ladder" strategy is that at any time you can state that this is your final offer, and if it is not accepted then you can break off negotiations for the time being.
7. Do not make any payment until you first receive a satisfactory settlement letter
It is critical that you do not make any payments in connection with a settlement until after you have received a satisfactory settlement letter.
Some unethical collectors will attempt to scam an unsuspecting consumer by offering a very generous settlement offer and asking for an immediate payment.
A few months later the unsuspecting consumer will receive payment demands for the remaining balance on the account.
A settlement is only binding if you first receive a satisfactory settlement letter prior to making your payment.
8. Elements of a satisfactory settlement letter
The following elements are required in a satisfactory settlement letter:
Must be on the letterhead of either your creditor or its authorized collection agent
Should be signed
The name of the person signing the letter should be legible
Should be dated
Should be addressed to you
Should identify your creditor
Should identify your account
Should state the amount of money that will be accepted as settlement in full
Should state the deadline for making payment
Will likely indicate one or more acceptable methods for making your payment
If you receive a settlement letter that does not contain all these elements then you should request another settlement letter that does meet these requirements.
9. You should fully comply with the terms of the settlement letter
If your goal is to accept a written settlement offer from your creditor, or its authorized collection agent, that you fully comply with the terms as set out in the settlement letter.
The settlement letter will state the deadline for making your payment. If you make your payment after this payment deadline your creditor can take the position that there is no settlement and simply apply your payment to your outstanding account.
Furthermore, if the written settlement offer provides instructions with respect to one or more methods of payment then it is important that you use one of the listed methods of payment.
10. Keep your settlement letter and your proof of payment
Collection agencies and creditors are large bureaucracies and clerical mistakes sometimes happen.
From time to time an individual will settle an unpaid account and several months later they will receive payment demands for the remaining balance--the amount that was eliminated as a result of the settlement.
This is virtually always due to a clerical error. All you have to do is to provide the entity demanding payment from you with a copy of your settlement letter and your proof of payment.
This means that it is very important that when you settle an account that you keep both a copy of the settlement letter and your proof of payment for your records.
I have published a YouTube video titled "Ten Tips For Negotiating a Settlement" highlighting crucial information for negotiating a favourable settlement.
In this YouTube video former collection agency lawyer and author Mark Silverthorn sets out 10 key tips for negotiating favourable settlements.
My tips for negotiating a settlement are based upon my 12 years working as a collection agency lawyer and another nine years as a consumer lawyer negotiating settlements on behalf of consumers across the country.
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