Negotiate Your Way Out Of Debt
Negotiating with creditors and collection agencies is intimidating. You want to repair your credit and eliminate debt. You fear creditor negotiations are like an MMA fight where you’re the pre-determined loser.
Here’s what you should know. Successful creditor negotiations involve:
• Arranging more favorable payment terms
• Getting a discount on total debt owed
• Getting the creditor to remove negative information from your credit report
Before negotiating, prepare, plan, determine and decide which debts to pay down and which creditors to start with first. This game plan which determine how successful you are at achieving financial goals.
Prepare Your Negotiating Plan
Devising your game plan consists of figuring the debts you want to pay and how you might achieve that goal. To come up with a plan:
1. Review your current budget to determine how much you can afford to pay. Create a budget if you don’t have one already. Creating a budget involves cutting expenses, reduce debt payments and/or earn additional money to figure out how much money you have to reduce, or pay off your debts.
2. Determine which creditor is paid first. You’ve probably heard about paying off the smallest debt first. This is a good idea, but you want to reduce the amount on your highest priority debts too. Highest priority debts include mortgage, car, utilities and student loan payments.
Pay off more recent debts instead of older ones. Older debts disappear from your credit history faster because the statute of limitations on debts. Creditors can collect, including filing a lawsuit for two to six years from the last payment.
Any time you negotiate or make a payment with the lender, you revive the old debt. This extends the amount of time you have to repay the debt.
Choose debts reported on your credit report. They improve your credit score faster than paying off debts not reported to the credit bureaus.
When you have multiple credit cards, choose one to pay down. Pay the minimum amount each month on the others to prevent incurring penalties and fees. Once you paid down one credit card, do the same thing with the next one.
3. Decide your goals for each debt you want to pay
What’s your goal for paying each debt other than getting more money in your pocket? Goals help you negotiate better because you know what you’ll accept and/or reject. Example of debt goals:
• Getting the creditor to remove the debt from you credit history
• Obtaining more favorable temporary and/or permanent payment terms
• Owing less money to the creditor
Additional Tips for Picking Debts to Pay First
Here are different strategies to use if you’re still confused about what debts to pay first:
• Negotiate with each of your creditors. Pay down or pay off the creditor that agrees to reduce your interest rate or debt the most or agrees to remove negative information from your credit report.
• Choose the account you want to use to rebuild your credit
• Choose the card with the highest interest rate. The strategy is to pay the high interest rate for a number of months to avoid the high interest over a longer period of time.
Employing Your Negotiating Strategy Requires Knowing the Other Party’s Intentions
Planning a negotiation strategy requires determining if you’re negotiating with a creditor or debt collector. Each have different priorities, goals and strategies.
A creditor is the person or business where you obtained your credit. It could also be the business that took your loan from the original lender. Examples of a creditor include a bank, credit card issuer or mortgage lender.
A debt collector works for an attorney or company hired to get you to pay the debt. The individual is part of a debt collection agency. They are similar to bounty hunters trying to find a fugitive because they’re only paid when you repay the debt.
There’s a big difference between a creditor and debt collector. You have more bargaining power with a creditor since they own the debt. Debt collectors are trying to make more money off you because they keep about 60 percent of the debt collected.
Debt collectors are more apt to have incorrect information about your debt. Unfortunately, they may even violate the government’s Fair Debt Collection Practices Act which prohibits abusive and deceptive practices.
Negotiating with Creditors
You have your negotiating strategy. You know your goals. Now the time comes to take action.
What do you do?
Here are some general negotiating tips to help you tackle this moment:
• Determine the creditor’s bottom line to determine how much they’re willing to negotiate for a deal in your best interest
• Have a plan and keep it. You have $500 to negotiate down a debt. Don’t agree to pay more than $500. It’ll prevent you from being successful.
• Settle debts with a lump sum payment. Many creditors will rather have money all at once than reccurring payments.
• Negotiate to eliminate late fees and other fees. You’ll pay less.
• Negotiate to reduce interest. You’ll pay down debts faster.
• Don’t let the creditor intimidate you. If they play hard ball, don’t be scared to end negotiations and contact them later.
• Avoid splitting the difference with the creditor. For instance, you offer to pay a lower amount on the debt. Your creditor wants pay the amount between your offer and payment demand. Don’t do it. You’ll pay more than you can afford.
• Be patient. You can tell your creditor no if it’s a bad deal for you. Wait a couple of days and try again because negotiations can take months to resolve.
• Don’t give up more than you get. Negotiations are about winners and losers. If you agree to something you can’t afford, you’ve lost. Your goal is to eliminate or reduce your debts, not give the creditors more money.
Pay Off or Pay Down Your Debt with a Great Negotiation Strategy
Negotiations involve a series of battles before winning the war. Negotiating with creditors requires having a plan and goals regarding the debts you want to pay.
This is important to understand if you’re negotiating with a creditor or debt collector. You’ll know how to plan to get what you want. Also, don’t be intimidated.
You can do this. You can become debt free by negotiating with your creditors.