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When you owe more money than you can pay, it can be difficult to understand how to negotiate with your creditors. The most important thing to remember is that if you ignore the problem, it will not go away. It may disappear for a while, but it will come back bigger and stronger than before.

How to negotiate with a credit card company if you are more than four payments behind

When your delinquent credit card debt reaches 120 days past due, the credit card company may move the account to their in-house collections department. This is their last-ditch effort to get you into a payment plan that will help them recover some of the money you owe on the account.

Due to lower rates of default, large banks don’t offer the amazing deals they did in the 2009-2012 era of debt negotiations. You can still get deep discounts on your total amount due by negotiating directly with the creditor before they send the account off to a collection agency, though.

Here’s how several of the top banks handle past-due debt in-house:

Wells Fargo 6-7 months delinquent Settling for 30%-40% of total debt is a frequent result for people with charged-off credit cards
American Express 3-4 months delinquent Settling directly with AMEX is difficult but not impossible at 50% of total debt
Citibank 4-5 months delinquent Offer 40% of total debt and expect 90-day payment plan terms
Discover 4-5 months delinquent Start with 30% of total debt but expect to make one lump sum payment
Capital One 4-5 months delinquent or when they have the account in their “recovery” department Start with 30% of the total amount due and request a payment plan
Bank of America 4-5 months delinquent or when after charge-off but before they sell the account to a collection agency They now settle for more than 15% of the balance owed but aim low. You may also be able to negotiate a payment plan with the settlement.
Chase Before six months delinquent but after charge-off Start with 20% of the total amount due and expect a 90-day payment plan

When a bank sells your debt to a collection agency, they receive very little money for it. Your offer of a settlement after they charge off your credit card debt but before they sell it to a collection agency could be lower than these numbers and still get accepted.

Understanding the possibilities may keep you from filing bankruptcy unnecessarily.

What to do when a collection agency calls

The worst thing a collection agency can do is sue you for the debt to get a judgment. If you don’t pay the judgment and associated legal fees, they can eventually garnish your wages. Depending on what state you live in, this process could take months or even years, so you have some time to deal with debt held by a collection agency.

Collection agency employees don’t generally have great reputations for being honest, kind, or helpful. Do not rely on their word for the information you need to get through this process. Their promises mean nothing.

Remain calm and stay quiet. The less you talk, the better off you’ll be in the long run.

Do not make a verbal agreement over the phone with a collection agency. When they call, your job is to collect information from them about the debt they are attempting to collect.

What to say when you get a call from a collection agency

Let them know that you are keeping a log of all calls from their agency. Use a notebook or your phone to take notes about the call. This will help you keep the facts straight.

Information to record during the call:

  • Date of the call
  • Time of the call
  • First and last name of the agent
  • Name of the debt collection company
  • Address of the debt collection company
  • Name of the company they purchased the debt from
  • The spelling of the name on the original account (verify that it’s yours)
  • Account number from the company they purchased the debt from
  • Amount of original debt
  • Last date of activity on the account (this is the last date a payment was made)

If the agent can’t or won’t provide you with this information the call could be a scam. Either way, ask them to send everything to your current address through the mail.

Check your credit files with Experian, TransUnion, and Equifax to verify that the debt is reported to one or more of the credit bureaus. You can do so for free at www.AnnualCreditReport.com. If you see conflicting information in your credit report, the debt may not be authentic.

Every state has a statute of limitations that governs how long a collection agency can pursue unpaid and unsecured debt. Old debts that have passed the statute of limitations are called time-barred debts. Collection agencies do not have the legal right to collect on these debts. They can report the unpaid debt to your credit report for seven years after the last payment.

A credit card or store-branded card are open-ended accounts. Here’s an example of a debt that would be time-barred:

  • Capital One Credit Card
  • Opened June 2012
  • Most recent payment made on card January 2014
  • Charged off by Capital One July 2014
  • Purchased by collection agency August 2014
  • Collection agency contacts account owner October 2017
  • State of residence is Arizona
  • The statute of limitations in Arizona is three years

Since there hasn’t been a payment made on this account in 45 months, and the statute of limitations on revolving debt like credit cards is 36 months in Arizona, the collection agency has no legal means by which to get a judgment. If they try, the person who originally owned the credit card could easily get the case thrown out by showing that the debt is time-barred. In most cases, a letter to the collection agency asking them to cease collections because the debt is time-barred would be sufficient.

Ask for a debt verification letter

After you’ve determined that the debt is legally enforceable in your state and you’ve seen it on at least one of your three credit reports, you can move on to asking the collection agency to verify that the debt is yours.

They are required by the Fair Debt Collection Practices Act to mail you the following information within five days of making initial contact:

  • Name of creditor
  • Amount owed

Their letter must include the following notices:

  • You have 30 days to dispute the debt or it will be assumed valid by the collector
  • You may write to dispute the debt or request more information within 30 days at which point the collector will verify the debt by mail, if possible
  • You may request information about the original creditor within 30 days, and the collector must provide it

When you receive this information in writing, you can proceed with requesting the in-depth information you’ll need from the collection agency to decide whether to settle the debt.

Ask for validation of the debt

You have the legal right to request validation of the debt. Because there are so many opportunities for error and you’ll need to create a paper trail to protect you in the future, it’s smart to send the collection agency a letter if you don’t recognize the account.

Here’s an example of how that letter may look:

Today’s Date

Your Name

Your Address

City, State, and Zipcode

Debt Collection Company Name


City, State, and Zipcode

Account number

I am writing to request that you provide validation of the debt referenced in a phone call placed to me on (date and time of last phone call from the collection agency.)

Please provide me with the name and contact information for the original creditor, a copy of a document proving I owe the debt, and proof that your agency is licensed to collect debt in my state.


Your Name

This letter can be printed out or handwritten. It doesn’t have to be time-consuming or complicated. It’s crucial that you send it by certified mail so you have proof that you mailed the letter and proof that it was received. The collection agency has 30 days to respond to your request.

If you intend to settle the debt, this letter will help you get the verification you need to prevent the debt from showing up again after you’ve handled the problem.

Zombie debt

It may seem complicated to go through all the steps of writing letters and verifying debt just to pay a bill. Without this paper trail, you won’t have any way of proving that you paid a collection agency for a specific charged-off debt.

Although it’s unethical, collection agencies sometimes sell information on paid debt to other collection agencies for a very small amount of money. Unscrupulous businesses may also gather enough information from credit reports to put together documentation designed to make you believe you owe money when you really don’t.

So, you could pay a debt in full and then receive letters saying you still owe the money years later from another collection agency. This phenomenon is known as Zombie Debt. If you have proof of the original creditor and records showing you paid the debt, it can help you keep the negative item off your credit report.

Settle the debt for less than you owe

No matter the source of your debt, if a collection agency purchased the debt from the original creditor, it’s possible to settle it for less than the total amount due.

If you can pay 25% to 50% of the balance immediately and you know for sure the debt is yours, the smartest move is to extend a low offer to the collection agency. Once you both agree on the amount you’ll pay to settle the debt in full, you’ll just need to get an agreement in writing from the collection agency that they’ll consider your debt paid off when they receive the agreed-upon payment.

You must receive this agreement in writing, or the collection agency could simply take your money, apply it to the amount owed, and resume their collection efforts for the balance. Making a payment on the account also resets your state’s statute of limitations on the debt. If you and a collection agency representative make a verbal agreement that you’ll pay 25% of the debt in one lump sum, but you don’t have the agreement in writing, you have no way to prove that they agreed to settle the debt with you.

Do not allow a collection agency to obtain your debit card, credit card, or bank account information. Even if you set up a payment plan, there’s only one safe way to pay a collection agency. Go to your bank or credit union and get a money order or cashier’s check. Send the payment, along with a copy of the settlement agreement via certified mail. If you give a collection agency access to your bank account they could take the entire amount due instead of sticking to your agreement.

Midland Funding and Midland Credit Management

The only time you should not send a letter requesting validation is if you know for sure that the debt is yours and it’s owned by Midland Funding or Midland Credit management.

For example, if you owe $3,400 to Credit One and they sell the debt to Midland Funding, you’ll deal directly with Midland Credit Management. If you work out a payment plan, MCM will remove negative marks from your credit report two years after the account is paid in full, instead of waiting seven years. You may be able to pay as little as $2,000 in one lump sum or set up a payment plan of $100 per month. Be aware that if you miss payments, efforts to collect the debt will resume and MCM may sue you for the debt.

This collection agency is the only one with a Hardship Exemption built into their company’s Consumer Bill of Rights. If your only income is from Social Security or Supplemental Security Income benefits and you have no assets, contact MCM to learn about their exemption policy. The company will also suspend collections if you are an active duty servicemember, are having financial problems due to medical bills, or are the victim of a catastrophic disaster or natural disaster.

Their online interface is easy to navigate, so looking up your account is a simple process. You won’t have to negotiate with a person, as they offer settlements of up to 40% off of the original debt or payment plans online, as well.

Do not expect the same treatment from other collection agencies. MCM is a unique company in that their goal is to work with consumers to settle the debt as quickly as possible without engaging in abusive or unfair tactics.

How to settle a judgment entered against you

Settling a judgement is possible, although you lose some flexibility when your debt reaches this point. It’s crucial to handle a judgement before the creditor gets a court to agree to let them garnish your wages or freeze your bank account until there is enough money to pay the debt in full.

Contact the law firm who won the case against you directly to make an offer of a lump sum payment if you can afford it, or monthly payments if you cannot. Judgements are often good for ten years and are renewable. They also accrue interest, so this is the most pressing type of debt and requires your immediate attention.

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