How to Negotiate with Debt Collectors

Does the collection agency own the account outright, or are they working on behalf of the creditors?

On the surface, it doesn’t matter who your debt belongs to. Whether its in the hands of the original creditor (the institution you originally signed an agreement with) or a debt collector, you still have an outstanding balance—with some small differences.

A debt always starts out in the hands of the original creditor. Then, once the creditor has looked at factors like length of delinquency, the client’s past financial behaviour, and whether the client has communicated any information to them, the creditor may decide to either employ a debt collector or sell the debt to a collector outright. Asking who owns your debt is important because it determines just how much flexibility you have in negotiating any new terms. It also tells you who to connect with.

“If an agency owns [the debt], they are the first and last word on what can be done,” says Bruce McClary, Vice President of Communications for the National Foundation for Credit Counselling. “Otherwise, they may have restrictions.”

If my debt is still owned by the original creditor but the collection agency is working on their behalf, who should I negotiate with?

“There is nothing stopping the debtor from circumventing the [collection] agency and going directly to the creditor,” says McClary. “But that won’t make them very happy, as they make money from the debtor.”

There is also the chance that the original creditor may not want to have any contact with you and may route you directly back to the collection agency. They will then act as a mediator between you and the creditor in order to coordinate a plan for the repayment of your debt. It may also mean that there are additional fees, in addition to the late fees charged by the original creditor. 

Confirm that this is legitimate

If you are unsure that this call is legitimate, call your original creditor. Ask them to confirm whether your debt has been sold to the collection agency in question before agreeing to anything.

Familiarize yourself with legalities

Within the provincial and federal governments, there are statutes of limitations on debt collection which vary by province. This means that there is a time frame in which a debt collector can legally force you to pay back your debt. This is typically calculated from the last date of activity on an account. Before agreeing to repayment with a collections agency, make sure you know that your debt is still within that time frame.

Minimize the amount of payments

Debt collectors typically work on commission, and will likely propose monthly repayment plans in order to entice you to pay back quickly. However, keep in mind that interest still accrues every month, which means that you will end up paying more than your initial debt is worth. One large payment may be difficult, but could save you money in the long run.