How to Negotiate With Creditors
When debt is mounting, stress mounts along with it. Debt can limit your financial stability, drain your bank account and make it impossible to obtain new credit. On top of that, the constant stream of calls and letters can prove to be embarrassing. You may look at your debt situation and feel like there is no way out. That is usually not the case. The bottom line is that creditors want to get their money, which actually provides you with some leverage. Here are some tips you can use to negotiate with your creditors to either get a fee removed or just keep some of the phone calls at bay.
Not only does negotiating with creditors help you save money by lowering interest and creating better repayment terms, but it can also help you get on the fast track to improving your credit score. Not sure what your credit score is? You can easily check your credit score online.
1. Make a Budget
Before you get in to negotiating with your creditors, you should first figure out where you stand financially. Take some time to write down all of your expenses for a month so you know how much money you are bringing in and where it’s going. Once you have this information, you will know how much you can afford to pay off your debts and see which bills you should pay first. You may have been already paying the minimum amount due on your debt, but when you’ve identified a little extra money by creating a budget you can go above and beyond which will really speed up your debt repayment. If you’re new to budgeting, check out one of the free online budgeting tools at Bundle or Mint.
2. Don’t Ignore the Calls
The more you ignore calls from creditors, the more they will keep calling. They will also assume you have no interest in paying your debt and may pursue collection action against you. If you talk to them, you will send a positive message that you take your debt situation seriously. Be honest with them and if you don’t have the money right now, just say so. They will be glad you’re at least responding and may make an effort to work with you.
3. Don’t let them Push You Around
Depending on who you are dealing with, some creditors may be pushier than others. If it is the original creditor, they probably aren’t going to be too bad since you are their customer. But a collection agency may not be so nice. They may say something is the best offer they can do, but that is not usually the case. Collection agencies want money like anyone else, so don’t be afraid to counter offer. Remember, it doesn’t hurt to ask. The worst they can do is say ‘no.’
4. Get Everything in Writing
If something is said verbally, it didn’t really happen. That is what you should assume when negotiating a debt. If it is a collection agency, send them letters or request they send you a letter. Having everything in writing protects you. Send your negotiation offer in writing and map out all of the terms. Ask them to sign a copy and return it to you so that you can keep it for your records. The last thing you want to do is assume you negotiated more favorable terms and find out a few years later they didn’t honor that and you’re back on the hook for thousands.
5. Request Negative Mark Deletion
When dealing with a collection agency, your credit score will damaged even if you pay your debt in full. Your original creditors have already reported the debt as charged off and gone to collections. You can make matters even worse if you also fail to make payments to the collection agency, who will then report that to the credit bureaus as well. The only way to dull the edge of a collection agency is to have the line deleted entirely, which doesn’t usually happen automatically. Usually, a collection agency will only agree to this if you pay your debt in full. Remember, send it in writing and detail that you want the negative item deleted in exchange for your payment.
6. Pay off Lower Debts First
This is simple. Lower debts will be easier to pay off and doing so will still have a positive impact on improving your credit score. Take a look at your debt profile and start with the easiest creditor first. Negotiate a comfortable offer, and you might be able to knock the debt out in a short amount of time. You can then begin to create a debt snowball by using the money that was going towards the small debt and apply it to the next largest payment and so on.
7. Ask to Remove Fees
This may seem like a shot in the dark, but you may be surprised how often it works. Many creditors will happily remove late fees, non-payment penalties, and accrued interest in exchange for payment. When you talk to them, state that the amount is simply too high for you right now and explain why you may have missed the payment. You will be surprised to find how willing most creditors are in working with you if you’re a relatively good customer. Obviously, if you’re late every single month and call to get a fee removed, you may not have as much success as someone who made a one-time mistake. Either way, it’s always worth a shot.
8. Ask for Better Rates
If you have an established relationship with a creditor, you might want to ask to be considered for a lower interest rate or a larger credit limit. State your case to the creditor that you have made consistent payments in a timely manner. Use your good payment history to your advantage. It is in their best interest to keep you as a customer so they may be willing to work with you.
9. Never Reveal Your Bank Information
If you are dealing with an original creditor, you may not have a choice but to pay via checking account or debit card. However, with a collection agency, you should never give them any of your personal financial information. Some lower level agencies will find ways to pull money out of your account. Explain to them that you will only pay by check or money order if they mail you a payment note or invoice.
10. Remain Confident
When negotiating it’s essential to remain confident. The potential to feel pressured or bullied is there, but if you stay on point you will find yourself in better shape. Remember that they aren’t entirely in control of the situation. If they do not accept your offer, send another offer. Do not feel pressured to accept their offer if you really cannot afford it. If the situation ever got to a court, you can prove that you were willing to work with them, especially if you got everything in writing. In all likelihood, it won’t get to that point, but you’d have the case in your favor. If you offer what you can afford and speak to them in a professional manner, you will find that negotiating debt will not be as stressful as it seems.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
I would say the first thing you should do is to check if you are judgment proof. If you don't make enough money, and have very little assets, a creditor can't collect from you. But of course it doesn't mean that they can sue you. If you find yourself being judgment proof, let the creditor know. This will definitely put the pressure on them!
I agree - you HAVE to go to them first. Don't make them chase you. After all, it's your debt, do the responsible thing and call them! Own up to it and they'll at least respect that and who knows, maybe wipe out some fees or something.