How to Negotiate with Creditors

Creditors are often willing to negotiate

Creditors don’t want you falling behind in your payments any more than you do. Most creditors are willing to negotiate more favorable terms to help you get through difficult financial times. By negotiating, creditors help you to avoid more serious debt problems or defaulting on your balances.

You must be honest and open with your creditors. Negotiating a repayment plan with your creditors depends on whether they believe you will honor the agreement. Explain your situation; making them believe you want to repay the debt builds their confidence in you. Try to contact them before they call you, answer their questions truthfully and quickly and keep the lines of communication open.

Creditors will sometimes settle their claims by agreeing to a smaller cash payment than your current balance, or by lengthening the amount of time you have to repay the loan and agreeing to smaller payment amounts, giving you more time to pay off the balance with payments thatyou’re your budget. This creates a win-win situation – you pay off your debt, helping to keep your credit rating from plummeting, and the creditor gets what is owed.

Which debts are most negotiable

Debts that are rarely negotiable include mortgage, rent, child support, and income taxes. However, unsecured debts (debts for which you provided no collateral, like credit card bills) will be easier to negotiate better terms. Many of these creditors would rather work out a reasonable repayment plan with you directly, rather than turn your account over to an agency for collection.

Prepare a definite plan

Analyze your finances and determine what payments you can make.

1. List all your debts.
2. List the monthly payments and what you can afford to make.
3. Determine your negotiating targets.

Implement your plan

1. Call your creditors and explain the details of your particular situation so your creditors can take those circumstances into account while developing a plan that will work for both you and them.
2. Tell each creditor that you have a realistic repayment plan that will allow you to repay your debt to that creditor, keep your account in good standing, and still permit you to meet your other obligations. Recommend a specific reduced payment amount and suggest the number of months that this plan will remain in effect.
3. Be polite but resolved while negotiating terms on your accounts.
4. Keep careful records of, the date and time of your conversation,whom you spoke, and agreement details.
5. Follow up your conversation with a letter addressed to the person with whom you spoke.
6. Never make payment promises you can’t keep or agree to a payment you can't afford to make.
7. Adhere to the terms of the agreement, once you have made a commitment to pay. You want to rebuild trust with your creditors.

Options you may wish to discuss with your creditor include:

• Making interest-only payments for a set period of time.
• Making reduced or no payments for a set period of time.
• Adding the arrears to the total amount due ("capitalizing the arrears").
• Agreeing on a schedule for repayment of the arrears. Repayments must be reasonable given your income and expenses.
• Offering a lump sum in full and final settlement of the debt.
• Writing off whole or part of the debt.
• Making payments from your benefits (this can only be done in certain circumstances).
• Obtaining gas and electricity pre-payment meters.

If the creditors will not accept your proposals

In order to persuade your creditors to accept your proposals, send a letter explaining your situation, including details of your debts, your expenses, your income and how you propose to pay your debts. Be sure to include in your expenses any money which you have agreed to pay to your priority creditors.

If any creditors refuse to accept your offers, ask them to reconsider. Point out other creditors that have agreed to your proposal. Be persistent. Creditors who don’t agree to your proposals may take you to court. Seek legal advice if this happens.

Respond to court documents within the deadlines stated and attend any court hearings, so that the court knows what you can afford. Ultimately, the court will decide what installments you must pay, and will look at and take into consideration all the circumstances surrounding your personal financial situation.

Nonprofit Credit Counseling Services can help you

If you find it difficult to negotiate with creditors yourself, your best option may be to seek the help of a nonprofit consumer credit counseling service (CCCS). These organizations generally have more negotiating power than individuals. You may be charged a small monthly service fee, however, creditors provide most of the support for financial counseling services.

The repayment plans arranged through credit counseling centers permit you to make a single monthly payment which is then redistributed through the agency program among creditors until all your debts are paid in full. Creditors usually prefer this kind of plan, because they will recover more of their money with this approach than they would under a bankruptcy.

You may still have to pay interest charges on your debts under a repayment plan through a financial counseling service, however, many creditors will waive interest charges and delinquency fees since you are making a real commitment to pay your debts through the repayment program set up through the counseling agency.