To enter a payment plan with a debt collector, it is important to understand how the collector has calculated the balance claimed. Frequently, the amount demanded by the collector is negotiable.  Often, non-principal charges, like interest and late fees, are quickly eliminated when negotiated.

You should write to the collector and request a detailed calculation of the amount claimed, which shows principal, interest, late fees, etc. 

If you agree with the collector’s calculation and terms for payment, you should formalize the payment plan IN WRITING. Send a Certified Mail, Return Receipt letter to the collector, detailing the total amount to be paid, the amount of your monthly payments, and the date your payment is due.  

NOTE: If you settle a debt consisting of $600 or more in principal (i.e. the actual loan amount - not interest or fees) for less than the full balance due, there could be income tax consequences. If you have a question about whether a settlement can result in tax consequences, you should seek the advice of a tax advisor or accountant.