This article from Rick at Locate Services, LLC (PDF copy), an Ohio debt buyer, discusses how debt collectors calculate their “debt collection formula,” or the percentage of the debt for which they will settle.
In addition to an interesting look into the collection process, the article contains valuable information for consumers who may be trying to settle a debt with a debt collector.
For example, Rick writes:
Many collectors believe that the demand for balance in full is required for any level of purchase, but I disagree. However, don’t take that wrong. We should always approach each account in every portfolio with the idea in mind that the balance in full is due, but we also have to be mindful of the fact that we live in a society that promotes settlements.
In other words, debt collectors would love to get a payment in full, but will almost always settle for less. Some money is better than no money, after all. Additionally, each debt collector works for a percentage of the payments and promises to pay that they get from debtors. Getting a settlement for 60% or 80% of the debt is obviously better for the debt collector or the debtor than getting nothing, and debt collectors themselves are strongly motivated to accept settlements.
The article also differentiates between “fresh” debt and other debt. Fresh debt is often easier to collect, so the more recent the debt, the greater the percentage the debt collector will expect to get. And since the owner of the debt determines the settlement percentage, the debt collector may not be able to accept less than 80%, in the article’s example.
Consumers can use this information to get an idea what to expect if and when a debt collector comes calling. Of course, if the debt ends up in litigation, the scenario usually changes, and a consumer must answer the lawsuit or risk forfeiting the entire amount. In my experience, debt collection law firms usually will not consider settlement, hoping in most cases for a default judgment if the consumer does not answer, in writing, within the statutory time frame (usually 20 days).