How to Negotiate With Creditors

Опубликовал Admin
27-09-2016, 02:25
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If you are having trouble paying off your debts, you should try negotiating with creditors before you give up and declare bankruptcy. If your debts have not yet been sold to collections agencies, you may still be able to craft a repayment agreement with your original creditors and reduce potential damage to your credit score. You may be surprised at the compromises many creditors will make to ensure that they get at least some of the money you owe. The following tips will help you learn how to negotiate with creditors over the phone.

Assessing Your Debts

  1. Create a budget before you determine what you are able to pay your creditors. You need to be able to pay your current bills to avoid acquiring more debt. Start by recording and adding up all of your expenditures for a month. This includes necessities like rent, food, other debt payments and utilities, as well as discretionary spending like entertainment and clothing purchases. Subtract this amount from your after-tax monthly income. Whatever is left is the amount that you have to spend on repaying your debts each month.
    • If possible, reduce your spending in certain categories (especially in entertainment and other discretionary categories) to increase the amount that you have left to repay debts.
  2. Organize your debts by potential consequence. Some debts are inherently more important than others. Specifically, failure to repay debs that are secured by collateral, such as a home or vehicle, may result in the loss of those assets. Similarly, debts incurred to perform your job (such as a credit card for travel and entertainment expenses) have priority over other debts. Prioritize negotiating and paying off your debts such that these debts are taken care of first.
  3. Organize your debts by value. Another tactic to use when prioritizing your debts is to start with the smaller debts. This is because repaying these debts will take less time, allowing you to get debts off of your plate more quickly. Try organizing your debts from smallest to largest and starting with the smallest one.
  4. Determine your payoff strategy. Consider the most critical debts to you when figuring out your payoff strategy. You should remember to account for the likely consequences of deferring payment to each creditor. When you choose an order, you can stop any harassment by advising all creditors to contact you by letter, not phone. This will allow you to avoid the temptation to "grease the noisiest wheel" by paying off the most annoying creditor first.
    • Refer to how to prioritize your debts for more information.
  5. Determine how you can pay. You might pay off your debts as a lump sum, in payments, or in a combination of the two. Most creditors will not agree to a deep discount in their repayment unless the payment can be made quickly or in an immediate lump sum. Accordingly, it may be better to negotiate a freeze in interest, deferral of payments for a set period, or another strategy. You need to be flexible with each creditor to get the best deal, but the priority should be getting out the most critical debts as quickly and cheaply as possible.
  6. Estimate the lowest amount that you think each creditor will allow you to pay. Most creditors expect at least 50 percent of the total amount of outstanding debt. However, some creditors will settle for less. One tactic is to start with 15 to 30 percent of the debt's value and negotiate up from there if needed. This is still more than the roughly 10 percent the creditor would get by selling your debt to a collections agency.
  7. Collect cash to make a payment. Creditors are more likely to accept a partial repayment if it comes in the form of an immediate cash deposit. Liquidate any assets you are willing to and collect money from other sources available to you (like bank or investment accounts) and collect it in one place. Sum up the total amount of money you were able to gather. You can then use this information when negotiating with a creditor.
    • Even if you choose not to pay in this way, a creditor may have the right to seize the balances of you bank accounts, so it's in your best interest to pay as much as you can from these accounts.

Contacting Your Creditor

  1. Call your creditor. As soon as it seems certain that you will not be able to repay your debt as originally agreed, call your creditor. You can usually find contact information on your bills or by searching online for the creditor. If you've already missed a few payments, odds are they will call you. In either case, make it clear that you don't have the money to pay the debt at the moment, but that you intend to work out a repayment agreement.
    • For example, try saying: "I know that I owe [the amount], but I don't have the money to pay right now. However, I would like to repay as much as I can."
    • Remember to be polite and calm. Avoid cursing and name calling, remembering that collection efforts are not personal for most collectors and you are just a name on a list.
    • When dealing with owners or employees of a business to whom you owe money, it is especially important to get them on your side.
    • Don't just ignore your creditor's calls and hope that the debt goes away. Immediately making an effort to speak to them shows that you are willing to compromise and might prevent your lender from selling your debt to collections agency.
    • Request to speak with a supervisor if the representative claims that there is nothing they can do for you.
    • If the representative can't help you, try saying, "I understanding there's nothing you can do. Could you please direct me to your supervisor or someone who can help me?"
    • If you keep getting denied the chance to negotiate, offer up some repayment figures. For example, you say, "I am prepared to offer [partial repayment sum] immediately to settle the debt" or "I can pay [new monthly payment] each month."
  2. Understand your rights. Creditors and collection agencies can sometimes get aggressive towards debtors in some cases, especially by calling very frequently and threatening additional fees. However, the Federal Trade Commission (FTC) guarantees rights to debtors when dealing with debt collectors. Specifically, debt collectors are prevented from:
    • Calling at your workplace, at late hours, or repeatedly in a short amount of time (provided you've told them to stop).
    • Calling your family or neighbors about your debt.
    • Adding fees that are not part of the loan agreement.
    • Using threats or obscene language.
    • Making you pay more than you owe.
  3. Record details of any phone conversations. If you carry out your negotiations over the phone, make sure to write down details. This includes the date and time of the phone call. You should also record who exactly you spoke to, including their name and title. Write down any numbers or offers that they give you, your responses, and any agreed-upon settlements. Finish your call by stating that you will confirm the agreed-upon terms to your creditor as a letter.
    • Confirm where exactly the letter needs to mailed to before ending the call.
    • If possible, record conversations with creditors for clarity.
    • You should always info the creditor that call is being recorded and give them the option of terminating the call.
  4. Write a debt negotiation letter. If you have already contacted your lender by phone and agreed upon a settlement or repayment plan, write out the terms of the agreement in a letter. Otherwise, use your letter as a place to begin negotiations. The advantage to negotiating in this way is that all negotiating are recorded in letters and can be referenced at a later date if necessary. In either case, be sure to include the following in your letter:
    • Your full name and account information (debt amount, account number, etc.).
    • An explanation of your situation.
    • A description of your proposed settlement.
    • Any agreed-upon settlements.
    • An email address and phone number at which you can be reached.
  5. Send letter(s) via certified mail. Be sure to address the letter to the correct address. Then, mail your letter via certified mail and request a receipt. This is more expensive than simply mailing the letter, but gives you a record of your mailing the letter and your creditor receiving it.
    • Another option is to mail your letter(s) via email. Emails are now considered legal documents of records and can be used in lieu of paper docs.
    • However, you will have to use certified email, which is similar to certified mail. This service is available from a number of businesses online.

Negotiating an Agreement

  1. Explain your situation. Start the body of your letter or email by explaining what is going on in your life that will prevent you from paying your debt as originally agreed. Creditors usually need a legitimate reason if you are planning to ask for a partial repayment. Acceptable reasons include the loss of a job, serious medical conditions, or large, unexpected expenses of another type. Make sure you are objectively explaining your situation, rather than pleading for sympathy. Don't spend more than one paragraph explaining your situation; keep it brief and simple. If possible, include numbers (your reduction in income, monthly cost of new bills, etc.).
    • When explaining your situation, be objective. For example, saying, "I lost my job two months ago and have no income to make my payments with" is better than "My jerk boss fired me and now I'm broke."
    • Be specific by including figures. For example, "I have recently been diagnosed with [serious illness]. This has resulted in monthly medical costs of $1,000, leaving me only $100 per month with which I can repay debts."
    • Explain, but don't threaten, that if you are not able to reach an agreement, your only choice will be bankruptcy. Most creditors will receive nothing if you file for bankruptcy, so they will adjust their ask if you mention it.
      • Saying, "If we cannot reach an agreement, I regret to say that my only remaining option will be to file for bankruptcy" is preferable to "If you don't let me make a partial payment, I'll just file for bankruptcy and you'll get nothing."
  2. Base your strategy on the type of debt you hold. Your best strategy will differ based on the creditor and the type of debt. In some cases, negotiation may be more difficult or impossible. Use the following guidelines when negotiating a settlement:
    • If you are negotiating a mortgage loan repayment, you will likely need a loan modification. This can be simple to negotiate with a small, local bank. However, if you hold a mortgage with a large, national lender, negotiation may be close to impossible. Any attempt at negotiation might result in fees stacking up while bills go unpaid, leading to eventual foreclosure.
    • Other secured loans, like auto or motorcycle loans, are much the same way. Secured loans are more difficult to negotiate because the creditor may receive the asset back in bankruptcy proceedings. Try focusing on offering a large partial repayment now.
    • Student debt requires a different approach. There are distinct federal programs that allow you to skip payments, change your payments, or cancel your debt, depending on your situation. Visit Studentloans.gov for more information.
    • Unsecured debts, like credit card debts, unsecured bank loans, and debts owed to local merchants are much easier to negotiate than the previous categories. Offer a percentage of the outstanding amount as a single payment or over time as a reduced monthly payment. You may be able to negotiate a lower interest rate if they won't reduce the principal.
  3. Make a specific offer. When you make a debt settlement offer, make it specific and based on your ability to repay it. For example, if you offer to make a single payment, make it for the total amount that you are currently able to come up with. If you are asking for a reduced monthly payment, show the creditor that this amount is all you can afford to repay each month. Give them an exact figure to negotiate from.
  4. Ask for fee removal. Ask the creditor to remove any late fees, legal fees, or fines for nonpayment. This can be particularly helpful if they will not accept partial payment. Removing fees will allow you to still save money while paying the debt in full.
    • When asking, emphasize your ability to make the payment if the fees are removed. For example, "If you could please remove the late payment fee assessed on my account, I would be able to make the payment in full on [a future date]."
  5. Get help in negotiating. If you are having difficulty reaching an agreement with creditors, you can get help from a credit counseling agency. These agencies can offer you advice on how to negotiate or help you plan out a repayment schedule that fits your situation. You can find them by searching online for credit counseling agencies in your area. There may even be some services offered for free, depending on your needs.
    • Avoid those credit counseling firms that take heavy fees but fail to deliver. Check with the Better Business Bureau (BBB) and state government to find legitimate agencies.
    • In addition, you can consult with a bankruptcy attorney. He or she will be able to tell you what debts can be discharged in a bankruptcy and what affects filing will have on you and your assets.

Finalizing the Agreement

  1. Ask the creditor to take any negative comments off your credit report once you have paid the agreed upon amount. Your credit report may already have been negatively affected by the unpaid account, but you can salvage it by having negative information taken off or relabeled. If the creditor agrees to this step, include it in the debt negotiation letter to hold them accountable.
    • If you are making a single repayment, your goal should be to have your debt reported as "settled."
    • If you have negotiated a reduced monthly payment, you should ask your creditor to report the debt "paid as agreed."
    • In any case, your credit score will not be as high as it would have been had you repaid the debt as first agreed. However, negotiating one of these outcomes can reduce the negative impact significantly.
  2. Get your agreement in writing once you have reached a compromise. You can either send the creditor a debt negotiation letter confirming the proposed payment details in it, or ask that the creditor send you one. Either way, it should be signed and dated by both parties and kept in a file so that you have record of the reduced payment agreement.
  3. Stick to your repayment plan. If you negotiate a lower monthly payment or a temporary forbearance on payments, make sure to stick to the plan as negotiated. In other words, don't agree to a plan that you can't afford. This will result in wasted effort and money on your part, as you will still have to file for bankruptcy in the end.
  4. Check that the information has been satisfactorily changed on your credit report after payment. Wait three months before checking your credit report. If it has not been removed yet, send a letter to the three credit bureaus to dispute the information.

Tips

  • Stay professional when negotiating when creditors, and do not let them intimidate you, as you are proposing a plan that is beneficial to both of you.
  • Be persistent when you are negotiating with creditors. If the first offer you mention is rejected, increase it until it is accepted, as long as you can afford the negotiated sum. Remember that most creditors would rather have some money than none at all, so be confident that your offers to pay will be accepted.
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