How to Negotiate Debt with Your Creditors

It has been my experience that many clients came to me to for Debt Consolidation simply because they had no experience with dealing with their creditors and the thought of actually doing it was intimidating. Here are some tips for you to use when negotiating with creditors or collection agencies.

First, realize who you are talking to. You are dealing with a 9 to 5 office employee and there is absolutely nothing to be afraid of. Seriously, they are people just like you who happen to work on the phone in a customer service office. Now what’s so scary about that?

During your conversation you need to be polite and friendly. There is no need to become defensive or confrontational. These folks are used to people calling them up and being angry so showing a warm and friendly attitude will set the tone. Let them know that you need their help and that you are willing to work with them.

If you can you may want to set aside a bit of money to use to “get the ball rolling”. The sum of three payments should work but be prepared to give them as much as several hundred dollars depending on what you can afford and how much the debt is.

Ask the representative if you pay a large size payment up front if they would do away with the late fees and penalties that have accrued on the account.

Agree to a new monthly payment amount that you can afford. Let the representative know that you are having problems and this is all that you can afford, there is no more money where this came from. Be polite but firm.

Here’s a helpful tip, Debt Management Programs offer most creditors 3% of the balance that the client owes as a proposed payment. Multiply the total balance that you owe by 3% the answer is your proposed monthly payment.

If you feel as if the representative is not willing to work with you and you are feeling frustrated with the call politely end the conversation. You can always call back at another time. Do not be rude.

Keep careful records; get yourself a tablet before you make any calls write down the day and time that you called as well as the name of each representative that you speak with. Let them know that you are doing this in a polite manner such as asking them “And your name is? Or, and what department have I reached?”. This will give them the message that you mean business, and take notes. Keep records of each conversation, what was discussed as well as the outcome of the conversation.

It is very important for you to save copies of all of the letters that you send to creditors and of course you must save any documents that they mail or fax to you.

Always send letters by certified mail, return receipt requested mail. This is very important as it is your proof that you sent the requested documents and also that their office received the mail. This will cost you a few dollars but it’s well worth the expense.

Always use a check or money order when making payments. It is very important that you are always able to prove that you have paid them. Keep all of this information together in a folder for future reference.

If the creditor agrees to a reduced lump sum payment to pay a balance off in full, be sure to get it in writing before making your payment. After you have received the agreed upon terms in writing then make your lump sum payment by check, money order or cashiers check. This is called covering your butt, I have seen many people make arrangements for reduced lump sum payments with creditors without getting the terms in writing only to receive bills and collection notices the following month and when the client called the collections office back to complain the collectors simply say “We have no record of any such arrangement.” Cover yourself.

Keep in mind that if you intend to settle the account for less than is owed that the creditor will not make payment plans for the new amount. They will expect the account to be paid in full immediately. Your credit report will most likely be marked as settled or settled in full.

Start your negotiations at the end of the month. If an account is in collections the collections department or collections agency will be more inclined to negotiate as they are trying to close out their books for the month. Also sad but true, many of these representatives have monthly quotas to meet or bonuses to win.

Only unsecured debt can be negotiated. If the debt is secured with any collateral creditors will not work with you in this manner. If you fall behind in payments on a secured debt it is very important that you keep in contact with the creditor. Do not avoid their calls and by all means work with them. If you fail to make payments on a secured debt the creditor can repossess or place liens on your property.

When dealing with creditors regarding unsecured debt please keep in mind that they can not put you in jail or take away your property. If the accounts are large enough and behind enough the creditor could take you to court and garnish your wages. Some accounts are considered “write offs” and are reported to the credit bureaus as such. These accounts are written off as a tax-deductible business loss. This situation is NOT GOOD and will ruin your credit.

Also see my section on How To Read Credit Reports.