If you want to learn how to negotiate your debts, this is the right article for you. There are many things to consider when you want to get rid of your debt obligations. In some programs, you will be required to go through some debt negotiations so that you can make your credit problems more manageable. In the end, that is the whole purpose of negotiating with your creditors about your debts. You want to convert into a new payment scheme so that your limited resources can manage your debt contributions while having enough left for your basic needs.
There are various methods and goals to debt negotiation and you want to make sure you know them all to see which is the most effective for your unique financial situation. Haggling with creditors have its own merits but you still have to be careful with it.
There are three important information before you decide to negotiate your debts.
When do you need to negotiate debt?
As previously mentioned, you haggle with your creditors to allow you to adopt a less restrictive payment plan. Here are a couple of reasons to negotiate with creditors.
High interest rate. One of the most common is the interest rate. When you have mostly credit card debts, you know that you are being dragged down by the high and changing interest rate. Some creditors will raise your rates even when you are good with your payments. You can negotiate that and ask the creditor to give you a lower rate so you can pay down your debts.
Credit terms. You can also negotiate for better payment terms like a lower monthly contribution or lower finance charges. If you have late payments, you can ask the creditor to remove these from your credit report so you can improve your score. You can even ask them to move your due date so it falls after your paycheck date.
Debt reduction. Another reason to negotiate your debt is when you want to reduce what you owe. This is normally called debt settlement. You ask the creditor to allow you to pay a percentage of your debt and once completed, they will forgive the rest of the debt. This is more difficult to achieve because a reduction would mean the creditor loses profit. But if you are in a financial crisis, they may relent.
What debt relief programs rely on negotiations?
Most debt relief options have some form of negotiations but there are two most prominent programs that centers on it.
Debt management. This debt relief program involves a credit counselor who will help you create a debt management plan that has your proposed lower monthly payment. This is the plan that will be presented and negotiated with your creditors. This lower payment is possible because you stretched it over a longer term. That will allow you to fund other obligations like your savings. When the creditor approves of the plan, you will send a single payment to the counselor who will distribute the funds to your different debt accounts.
Debt settlement. The goal of this program is debt reduction. As discussed previously in the article, you will negotiate with the creditor to allow you to pay only a portion of your debts. This will be done by convincing them that you are in a financial crisis. You will be defaulting on your payments intentionally to give this impression. The funds that should be sent to the creditor will be put aside in a secret account that you will grow until the creditor is ready to settle with you. When they are, you can offer to give them the amount that you have saved up but they have to forgive the rest of your debts. This negotiation can be done with a debt arbitrator or by yourself.
Who can negotiate your debts?
There are two ways to go about debt negotiation. One is with a professional and the other is by yourself.
If you plan on hiring the service of a professional, know that there are non-profit agencies who provide their services for free. However, you need to know that you will ideally be in a better position with paid services.
There are various professionals who can act as debt negotiators.
Credit counselors are those who help out with debt management. You may want to ensure that you are hiring a reputable and legitimate company. The US Department of Justice holds a list of accredited credit counseling agencies that can help you out.
Debt arbitrators are usually the term for those who negotiate a debt settlement. Ideally, you want to hire one that is a member of the IAPDA (International Association of Professional Debt Arbitrators). These are the trained and legitimate professionals who are capable to getting a settlement agreement with your creditors.
Lawyers can also help negotiate debts on your behalf. In fact, they can even help take over collection calls for you. But their fees may be a little different than other financial experts.
You also have the option to negotiate your own debts with creditors. It will take more effort but you can save on the service fees this way. DIY debt negotiation is usually stressful and frustrating but once you succeed, it can be really rewarding. Here are some tips when you want to negotiate your debts.
Know your opponent. You have to understand what you will be facing so you know how to deal with creditors smartly.
Research about the process and the law. What you lack in experience can be compensated by your knowledge of the whole process. You need to specifically learn about the FDCPA or Fair Debt Collection Practices Act. This law will protect you from abusive creditors.
Offer only what you can afford. Do not be swayed by what the creditors will offer you. Stick to what you can afford only – never more.
Put everything in writing. All communications must be documented properly. Any agreement must be clearly stated in a document and duly signed by both parties.
Be extremely patient, polite and calm. Although creditors and collectors may become rude, keep your calm and always be polite. If you remain friendly, the chances that you will get them to cooperate is more likely to happen.