How to Negotiate a Debt Settlement With Creditors

Overwhelmed by debt

In this difficult economy, having good credit is increasingly important. Your good credit may be the key to low financing when you are looking to buy a car of home. However, many of us have some credit challenges, and some may need to negotiate a debt settlement with a creditor when an account become delinquent. How do you start? What steps do you take? How do you insure your credit report is not adversely affected?

Things You'll Need

• Patience
• Credit statements
• A current copy of your credit report

Instructions

1. 

   When looking to negotiate your credit card debt, it is a good idea to take a look at your credit report. This report will give you an exact picture of what your debt is, and how the debt affects your credit report. You can obtain one free credit report annually from annualcreditreport.com. DO NOT pay for this report. The key in negotiating debt is to have pay the least amount of money, and obtain the most positive outcome on your credit report.

2. 

   Once you your credit report in hand, note the amount of the debt, status, collection activity, and how long the account has been open. Having this information will insure the information you need is readily available when you speak to the creditor. Your credit report will also ensure you speak to the right agency, in case your account has been referred to another agency for credit collections.

3. 

   Call your creditor and discuss your debt with them. Creditors are willing to work with clients when you open the dialogue. Generally, collections occur as a result of no contact. Thus, it is always better to be proactive when credit problems occur. Be prepared to explain your current financial situation with the creditor (layoff, injury, family crises, etc.). Make sure you tell your creditor that it is important to you to clear any negative debt items on your credit report. Maintaining a positive credit rating and reducing your debt should be at the top of your list.

4. 

   When negotiating your debt, you need to evaluate your options. You can pay all or some of your debt, and negotiate with the creditor the rating you will receive on your credit report. Depending on the age of the account, you may be able to negotiate your debt before any negative items appear on your credit report. The newer the debt, the more likely you can achieve a positive outcome on your credit score. The older it is, the more likely you can settle your debt for less money.

5. 

   When you call the creditor, advise the customer support rep that you want to negotiate a settlement to pay off your account. Increasingly, line level employees have some ability to negotiate the terms of your outstanding debt. This is often limited to interest rate reductions, lower minimum payments, and/or providing you with an extended grace period. If this meets your credit needs... great! If not, do not be afraid to ask for a supervisor who can assist you in negotiating your debt.

6. 

   Speak to a supervisor, and again stress the importance of negotiating your debt and protecting your good credit report. Assuming your debt is in collections, you will have two options: One pay your negotiated debt in one lump sum. This will give you the best bargaining power in asking for a positive credit reporting. Your other option will be to negotiate with a payment plan, perhaps spread over 60-120 days. For example, if your total debt is $10,000, you may offer to settle for 60-65% of the balance. You may make a lump sum of $6,000, or perhaps make payments over four months that will total $6,500. The most important thing here is to negotiate for what you can do to settle the debt, and not what you cant do.

7. 

   Obtain a written agreement for the new terms. You can type up your own agreements and send to the creditor for approval, or you can ask the creditor to mail you a signed terms of agreement. In either case, you will want a signed agreement from the creditor for the new terms. Ultimately you want a "paid in full" on your credit report. However, you may have to settle for "paid as agreed" or similar. If at all possible, you will want to ensure that all collection activity is removed from your account.

Tips & Warnings

• Always get a copy of your free credit report before you start your negotiation.

• Do not be afraid to ask for a settlement. You will not get it if you do not ask for it.

• If you do not get what you want from the customer service rep, ask for his or her supervisor.

• Create a monthly budget so you can make sure you are negotiating your debt for an amount that you can pay.

• If possible, always negotiate the debt with the original creditor.

• Always be polite and thank the creditor for their willingness to create a win-win in paying off the your debt with the company.

• The older your debt, the less you can negotiate.

• Always get the negotiated terms in writing BEFORE you make your first payment.

• Do not ask the creditor what they are willing to accept. Tell them what you are willing to pay.