How to Negotiate Hardship Debt Restructuring

Research your finances to successfully negotiate debts.

Most lenders offer hardship programs. It is in the best interest of all lenders to work with consumers. If accounts are charged off, both the lender and the borrower will suffer. Hardship programs, however, are proprietary. One lender's income and credit guidelines will likely differ from another lender's. However, there are some strategies you can employ to successfully negotiate hardship programs.

Things You'll Need

• Account statements
• Income documents (W-2s, pay stubs)
• Credit report

Instructions

1. Access a recent, free copy of your credit report at AnnualCreditReport.com. Before negotiating any debts, you should have a clear understanding of your own creditworthiness. You might also want to purchase a FICO score. This three-digit number is a snapshot of your overall credit. Scores above 720 are excellent; scores below 600 are poor.

2. Calculate your debt-to-income ratio (DIR). This is a calculation lenders use to determine your ability to pay back loans. To find this percentage, divide the sum of your monthly bills by your total gross income each month. Lenders will not offer hardship programs if you show an ability to repay your loans. A DIR above 50 percent shows a clear economic hardship.

3. Collect all documents relating to your economic hardship. These can include unemployment stubs, disability award letters, medical/doctor letters and bankruptcy papers. You will need these to argue your case when you open negotiations.

4. Craft a letter to your lender. This is the letter that will begin negotiations. Include your name, account number, Social Security number and email address. You will want to handle all negotiations via mail or email. This creates a paper trail that may be required to hold a lender accountable.

5. Ask for a hardship restructure in your letter. Be specific. Ask for a specific interest rate, payment and term. Suggest making a one-time lump sum payment to show your willingness to repay the debt. Send this letter with copies of all documents that corroborate your economic hardship.

6. Counter the lender's offer, once you receive it. Make sure to be reasonable, though. If you are countering, make sure you have a reason. For example, if the lender's suggested monthly payment still doesn't get your DIR below 50 percent, you can argue that the hardship programs wouldn't solve the hardship itself. Send any counteroffers via mail or email.

7. Get the final hardship plan in writing. Review all terms and make sure the plan is financially beneficial. Only sign the document after you review it with a trusted adviser, like your accountant.

Tips & Warnings

• Debt settlement is costly. It will damage your credit for at least seven more years. Try to restructure existing debt instead of settling the debt.

References

• Federal Trade Commission: Knee Deep in Debt
• Bankrate.com: Are Collection Agents Treating You Fairly? If Not, Fight Back!
• Bankrate.com: 10 Debt Consolidation Myths

Resources

• AnnualCreditReport.com