Hack the Banks – Chapter 6: The Marketplace of You

At some point my debts were sold to a series of collection agencies with names like “Customer Financial Welfare Trust and Services Inc.” Even if they were called “Teddybears and Rainbows LLC” it wouldn’t change the fact that these companies exist to extract as much money from people who demonstrably don’t have a lot of money. I don’t envy them the job.

It’s important to know a few key facts about collections entities since the interactions with them are a key part of getting out of defaulted debt:

1. Collectors are buying your debt for a fraction of what you owe.

2. There are a bunch of rules that stop them from doing truly obnoxious things like calling your workplace or making threats. If they do these things they’re in mucho hot water and you won’t owe them anymore.

3. They will settle if you have cash.

Here’s a story to illustrate how this works. There was a particular banking entity that will I not name (Their name rhymes with “face spank”) to whom I owed a sum of money. I called this bank and a very dismissive woman on the phone told me that they couldn’t possibly settle for less than 50% of the debt’s value. I hung up.

Once that same debt was bought by a collections entity, however, it was settled for 10%. Thanks to the vagaries of the US tax code, I did have to pay taxes on the other 90% of the debt as income but even with that extra cost it came nowhere near to approaching the 50% figure that the bank quoted me.

When it comes to negotiating it’s easy to think of the debt collector as a salesman and you as a consumer trying to negotiate the lowest price. That’s actually the wrong way to think about the transaction because you are the marketplace and the debt collector is the buyer.

I always try to visualize this by imagining that I’m a seller in an old world bazaar and on my table is a pile of cash. In front of me are all the debt collectors who would really love a chunk of that money on my table. Now each of them would all love me to believe that they are the ones with the leverage because they’re holding my debts but the truth is that what really holds the power is the cash on the table.

“I’ll take 40%!” One collector offers.

So I counter with “I’ve got an offer for 20% from another agency, I think I’ll do business with them instead…”

“Ok, how about 30%?” The collector says.

Just like any negotiation the first offer isn’t ever going to be a good one. That first letter or phone call that offers to let you settle for “only 70%!” is nothing more than a chance for a good laugh. Keep your cool. Wait it out. They want your money and sooner or later they’ll cut a deal.

After all, as we’ve seen previously, once they lowered my credit score there’s really not much they could do other than be annoying unless they actually choose to sue me — which none of my collectors did, because my individual debts were mostly under a few thousand dollars and (as we already covered) I had no assets.

If told to stop calling the collectors can’t even do that anymore. This makes a quick cash settlement a very good option for the agencies to take.

I have yet to pay more than 30% of face value for any debt. Many have been paid for considerably less.

I’m going to take a second here and talk about another piece of “expert” advice that was of no use to me. Most of the articles I’ve read say that it’s vitally important to stay in close touch with your creditors. I’ve found the exact opposite to be true: the more you seem to avoiding the debt collectors the less likely it seems to them that you’ll pay the debt and the better the offers become.

Collectors are using information about you including your age, income, location, race, sex, and total debt amount to calculate how likely they think it is that you’ll pay up. Every contact you make is being logged and used as part of their calculations of what kind of deal they’ll cut you.

In any negotiation I want the other side to be nervous that they’ll end up with nothing. Every communication anyone makes with a debt collector is logged as part of their record. If I call in and start asking about payment options then that collector will see that I’m interested in paying and the eventual offers won’t be nearly as good.

Knowing that you can settle for cents on the dollar is incredibly empowering. $3000 is a lot of money to try to save. But $300? What about $600? That I can probably put together in a couple months of saving — as long as I’m not spending my extra income on feeling better.

With every win the momentum grows. With every new settlement you can feel your confidence returning and that power is what will enable you to continue to get better and better deals in the marketplace of you.

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I've written a few blogs here and there full of the things I thought people might want to read. This blog is the one I'm writing for me.

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