Negotiating with people you owe money to is never easy.  You feel guilty for falling behind in your payments and creditors use that guilt to extract concessions from you that sometimes you cannot make.   Here are a few things you need to know when dealing with creditors.

You may feel powerless when the debt collectors are calling, but you actually have a wide rage of options.  They may be willing to lower your monthly payments, defer one or more payments, waive accrued interest, late fees and penalties, lower your interest rate, or somehow make paying it off more achievable based on your current financial situation.

If it suits your financial situation, try asking for a long-term payment plan that you can afford — but be careful on the interest rates on these payments, you want to make sure parts of your payment are going to pay down principal amounts, not just interest.  You also want to make sure fines and penalties are not accruing to you while you are on the long-term payment plan.

If you have enough money to do so, try offering a 50% (or less) payment on the debt.  Many creditors will take half of something rather than chase all of nothing.  You can negotiate for either a lump sum payment or pay over time via multiple payments.

Negotiating won’t be easy.  Their job is to collect money using tactics that are pushy, obnoxious, or rude. But don’t give up after just one attempt.  Here are some tips for dealing with them:

  • If that obnoxious person on the phone denies your request to negotiate, ask to speak with a supervisor.
  • Don’t agree to pay more than you can actually afford. The last thing you want to do is negotiate a settlement or payment plan that you can’t stick to.
  • During your negotiating process, figure out what the creditor is willing to accept as a settlement. Start low and just creep up slowly.  Settling for between 50% and 70% percent of what’s owed, either as a lump sum payment or through a payment plan, is not unreasonable, and point that out to them. (Getting to the final amount may take several rounds of negotiation.)  If you can settle by paying one lump sum as opposed to a payment plan, you’ll have more negotiating leverage.
  • Do not be intimidated if they make threats about lawsuits.  (Lawsuits cost money and they aren’t always as eager to sue you as they proclaim to be.)
  • Be patient.  The entire process could take days or weeks from start to finish.
  • Make sure everything you ultimately agree to is put in writing, signed, and dated by both parties.  Listen carefully to what’s being said and make sure you understand exactly what you’re committing to. Consult with a lawyer or credit counselor if you have questions.  And do not sign anything that you do not understand completely!

Finally, you should know that when a creditor or lender needs to report negative information about you to a credit reporting agency, they have some discretion about how negative that information actually is. So you can sometimes get them to record information that won’t have such a negative impact on your credit score. This is something you’ll need to ask for.  It’s never something a creditor, lender, or collection agency will do automatically.

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