Negotiating with debt collectors
The economy is in the tank, and likely to get worse. Your house is now worth less than the value of your mortgage, and you’re worried about getting laid off. And sometimes, you’re juggling bills, trying to get some paid before others turn late because you’re short on cash.
It’s always best to avoid having your debts get to this point, if possible; you can deal with your creditors on your own, but it’s a good idea to work with an attorney, debt management service or debt counselor. Debt negotiations can be a difficult and lengthy process and most likely your time is better spent elsewhere. If you really want to go it alone, the following tips can help you negotiate the best settlement:
First – talk to your bank or your mortgage company about renegotiating the loan. They are terrified of loan defaults, and may be more flexible than you’d think (Of course, if you’ve been in your home for seven years or so – before the start of the housing bubble – you may be sitting pretty now.)
Before you call, have a plan. Tally up all of your debts, all of your expenses in a month, including a general “oops” amount, and figure out how much you can really afford to pay. Paying down your debts takes some fiscal discipline; cut back on going to fast food restaurants and learn to cook more vegetables for meals are two surprisingly easy ways to cut back on expenses.
Third – prioritize your payments. You want to make the biggest boost in your cash flow that you can; that means paying off the highest interest cards first while keeping up with the others. Your budget should also include saving for a vacation, and other entertainment expenses; people who try to get their way out of debt trouble by living through a personal austerity program rarely make it all the way through before something ’snaps’ and they splurge on something, digging themselves back into the hole.
If you want your creditor to settle with you, you need to make the argument that you cannot afford to keep making your payments and other than garnishing your wages, a settlement is the only way they’re going to be able to recoup their losses. If they’re not receptive to this, you can get some professional help and threaten to file for bankruptcy; since your creditor will probably get nothing at all in this case, they’re likely to settle with you at this point.
Even after a settlement has been made, there will usually still be the negative item “did not pay as agreed” on your credit report; or perhaps “settled for less than total outstanding balance”. These are no better than having a “charge off” or accounts marked as delinquent. When negotiating for a settlement with your creditors, try to get them to report these accounts as “paid as agreed”, or even remove the trade line entirely. Unless you do actually pay your debt in full, you probably won’t be able to get them to report paid as agreed; but you might be able to do this if you can negotiate a waiver of penalties and interest charged, making it easier to pay in full.
If these won’t work, it’s time to talk to a credit and debt counselor. They can help you with a number of options ranging from consolidation loans to debt settlement programs to bankruptcy filings, depending on how dire your straights are. Your aim is to hold on to the things in your life that are important to you.