3 Tips On How To Negotiate With Your Debt Creditors

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The total credit card debt in the U.S. is higher than it’s ever been before and, due to tough economic conditions, there are also more people falling into delinquency on those debts. As a result, more banks are willing to negotiate when it comes to paying off loans, credit cards and other debts. However, it’s best to plan ahead with the following steps if you hope to negotiate with your creditors.

Determine Your Budget

For many people, the problem with their debt is that the monthly payments are simply too high to keep up with. Part of this problem could be high interest rates – when these escalate, the minimum monthly repayment hardly makes a dent in the total debt owed. If you want to negotiate your repayment terms, it’s best to know beforehand what you can reasonably afford to pay every month.

Sit down and review what your monthly income is and what you have left after paying for all the essentials – mortgage, utilities, groceries, etc. Determine how much of what’s left over you can reasonably pay to your creditors each month. Set this as your limit – this is the maximum amount you can afford to pay each month without falling further into debt.

Request A Compromise

Now comes the actual negotiation. Call up your creditor and ask to speak to someone about your repayment terms. It may be difficult to get someone on the phone about this matter, but continue pursuing it. It’s likely that you may need to ask to speak to a supervisor.

Once you have someone on the phone, briefly outline your goals for negotiating. The following are a few different tactics for negotiation. Consider which will work best for your situation.

  • Reducing monthly payments: If you are struggling to make those monthly payments, let your creditor know. You can ask for a temporary or permanent reduction in payments based on your budgeting from the previous step. Explain that this will allow you to make reliable monthly payments.
  • Cutting interest rates: When interest rates are high, it often means that your payments are going mostly towards paying off the interest from that month rather than your total debt. Request a lower interest rate to help your debt shrink faster. If you have a higher credit score, mention this fact as it may work in your favor in this situation. You can also mention that you are considering switching to a different creditor with lower rates.
  • Pay in a lump sum: If you have the funds to do it, consider paying in a lump sum. Often, creditors will consider reducing the total amount of debt if you are able to do this. Another benefit of this strategy is that you skip the amount you would have paid in interest.
  • Reduce your total debt: This tactic is a long shot in most cases, but for some who are in serious debt it may be an option. If you plan to use this strategy, try to have a plan in place that you can suggest – what amount you would like taken off your debt and how much you can pay per month until the rest is paid off.

Throughout your discussion keep a few things in mind. First, you should avoid getting angry or blaming the person on the phone for your situation. Second, be firm in your position and don’t exceed your limit for monthly payments. Lastly, attempt to create a sense of benefit for both parties involved – in other words, frame your position in a way that makes it clear that the compromise will help both parties involved, not just you. After all, a successful negotiation helps the creditor receive the money they are owed and allows you to keep from falling further into debt.

Get It In Writing

If your negotiation is successful, then you’re well on your way to getting out of debt faster. But before you breathe a sigh of relief, get whatever deal you just struck in writing. If it’s for a lump sum payment or a reduction in your debt (or if the contract seems unnecessarily complex), you may want to have an attorney look over your agreement to make sure the terms are in agreement with your deal with the creditors. For adjustments to your interest rates or monthly payments, it’s likely that a simple written agreement is sufficient.

Even if the creditor says it’s not necessary, request that a contract be written or create one yourself and have them sign it. Make sure the documents are official (use a notary if necessary) and that all parties involved have signed and dated it. Keep copies for your records and check that all bills and communication from the creditor from there on out are in agreement with your deal.

With so many people falling behind on their debt, now is the time to take action if you need to negotiate with your debt creditors. Keep in mind, however, that not all creditors may be willing to negotiate. See a financial advisor if you need further assistance in dealing with your debts.

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Last Updated: June 13, 2012
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About Ashley Henshaw Ashley Henshaw is a contributing author to CanDoFinance.com. She has been a freelance writer since 2007, writing for high-profile websites that include LIVESTRONG.com, The Huffington Post, USA Today, and City's Best. Now based out of Chicago, Ashley is a graduate of Loyola University Chicago with a bachelor's degree in English.

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