If you are dealing with calls from debt collectors, getting notices for overdue bills you still can’t pay or have old debts you’d like to settle to clean up your credit report, you may be able to take action. Many people don’t realize that all debts aren’t written in stone, and you may be able to negotiate with creditors to move your finances in a more positive direction. Here, learn how to negotiate with creditors and when it’s a good option to try.
When should you try to negotiate?
Negotiating with a creditor usually involves trying to get them to accept a debt settlement. This means that you agree to pay a portion of the debt instead of the full amount, and the creditor accepts this. Creditors are sometimes willing to agree to these arrangements because they know that an account already in collections is less likely to be paid, and they would rather have some money than none at all.
Working out a debt settlement can help you get current on accounts again or help you pay off old collection debt. However, there are some things to be aware of.
Successfully negotiating a debt settlement doesn’t make the debt go away completely. It will still show on your credit report until it ages off after seven years, and even if the creditor marks it as paid, the negative payment history can still affect your credit score. In some cases, starting to make payments on the debt again as part of a settlement agreement can also restart the statute of limitations on the debt.
In addition, you need to be prepared for possible tax consequences. Sometimes, when you successfully get a debt lowered by $600 or more, your creditor will send you a Form 1099-C. This means that the amount forgiven is considered income and may add to your tax bill.
10 steps for negotiating with creditors
Attempting to negotiate with creditors can be intimidating, but it doesn’t have to be. Use these 10 tips to help you prepare a plan, handle the actual negotiations and be ready to follow up as necessary.
1. Be honest
It’s important to be honest as you negotiate with creditors. Saying you can make payments that you’re not able to follow through with or over exaggerating financial problems can actually make the situation worse. It can also make it more difficult to work together with the creditor for a mutually acceptable solution.
When you’re negotiating with creditors, know exactly how much you can pay and when. Be clear and factual when explaining factors, such as a layoff, that may have contributed to the issue.
2. Stay calm
It’s normal to be frustrated, worried and even angry if you’re in a position where debt collectors are calling, but it’s important to stay calm and professional when interacting with creditors.
For example, if you’re trying to get a creditor to remove a late payment from your report, you may remind them that you haven’t missed a payment before. Then, you can let them know that you were injured and unable to work for a few weeks, but you’re back to work now and future payments won’t be a problem.
Getting emotional can also indicate to creditors that you are in a desperate situation, and some may try to capitalize on this by being unwilling to negotiate or saying you have to make a payment before you’ve gotten the agreement in writing.
3. Have cash available
When you call a creditor to try to negotiate a debt settlement, it’s important to have the cash available right then. You’ll still want to wait to make a payment until you have the agreement in writing, but many creditors can send this via email instantly, which means you’ll need to be ready to pay soon thereafter.
Instead of giving creditors access to your banking information, consider using a prepaid card to make your payment or do a wire transfer.
4. Present a plan of action
Any time you try to negotiate with someone, it’s important to know exactly what you want out of the deal and what you’re willing to give, also known as the “terms” of the deal or settlement. Going into the negotiation with a plan shows the creditor that you’re serious about trying to settle, and it provides an instant starting point so you can get to a resolution faster. Knowing what you want also helps you stick to the plan if the creditor tries to get you to pay more or accept different terms.
5. Ask for modified loan terms
In some cases, you won’t be able to negotiate for a debt settlement. The creditor may be unable or unwilling to accept the settlement, or it may be something like a mortgage or student loan that isn’t eligible for settlement. In these cases, you can still try to negotiate certain aspects, such as interest rates or minimum payment amounts, or ask for a forbearance to help give you more control over your financial situation.
6. Cover worst-case scenarios
There are times when negotiations aren’t possible because you don’t have the money to pay. In these situations, the best thing to do is be honest with the creditor. Let them know that you want to pay but can’t and that you probably won’t be able to pay in the near future either.
Mentioning bankruptcy may help motivate the creditor, as they would rather get a little bit of the money than lose it all under the protection of a bankruptcy. They may be willing to accept a small amount of money instead of nothing at all.
7. Be persistent
Creditors can be difficult to negotiate with, and you may have to call multiple times and present your settlement offer only to have the creditor refuse to settle. Don’t give uyp and continue to be honest, courteous and matter-of-fact in all of your interactions. Also, don’t be afraid to call back and try again if the creditor refuses to negotiate the first time.
8. Keep a record
Always keep written records for every communication you have with a creditor. Record important details like the date, time and length of the call, the name of the person(s) you spoke to and general notes on the conversation.
9. Practice follow-through
This ties into the first point, but when you’re dealing with creditors, it’s important to always follow-through with what you say you are going to do. If you set up a payment plan, make sure to actually make the payments as promised. Creditors deal with people facing financial difficulties and strain on a daily basis, and they may be more willing to negotiate with those who are taking steps to help themselves.
10. Get professional help
While you can do everything that a credit counseling agency can do, this doesn’t mean that you should. Dealing with creditors requires a great deal of time and energy when it comes to making phone calls, dealing with paper trails and keeping records of who said what when. A professional company or attorney can sometimes help take some of the burden so you can focus on continuing to work toward a better future.
What if negotiation doesn’t work?
While negotiating with creditors can help in many situations, there will be times when it doesn’t work. Whether the creditor refuses to negotiate or your financial situation is dire enough that negotiations aren’t going to actually make a difference, there are other debt relief options, such as bankruptcy, that you may want to consider. Filing for bankruptcy is serious and is usually considered a “last-resort” option. If you think that your situation may require filing for bankruptcy, make sure to speak with an experienced bankruptcy attorney who can discuss the details of your case.
Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.
Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.
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