When you’re dealing with debt, your creditors may be the last people you want to talk to. But there may come a point when no matter how many adjustments you make to your budget, you just don’t see a realistic way to pay down your unsecured debts — think credit cards, medical bills and personal loans.
If your credit score is starting to suffer from missed payments and your creditors are papering your mailbox with past-due notices, it may be smart to try negotiating with them. Your goal here will be settling on a number that’s more than zero but less than what you currently owe; a compromise of sorts.
It can be very intimidating to pick up the phone and reach out to your creditors, so here are four tips to help you through the negotiation process.
Cite an Honest Financial Hardship
What factors contributed to your current financial challenges? Take a moment before calling to either mentally brainstorm or write down the primary hardships that have affected your ability to pay.
The experts at MarketWatch recommend coming up with a few concise sentences that convey the hardships you’re facing and what you’ve tried to do to get caught up on your bills. Examples of common hardships include layoffs in the household, medical emergencies, death in the family and divorce.
Just make sure what you’re telling your creditors is true.
Start by Offering Less than Half of What You Owe
The ultimate goal of negotiations is to get your creditors to agree to accept a percentage of your original balance. As with all negotiations, you’ll want to throw out an initial offer that’s likely lower than what your creditor will accept. You might go through a couple rounds of counteroffers.
Nolo recommends starting at 15 percent so you can ideally settle for less than 50 percent of what you owe. Keep in mind, however, every creditor may respond differently to negotiations.
Your position will be strengthened if you have your offer already saved up and ready to go. This will compel creditors to accept a lower percentage in exchange for timely payment. At the very least, be prepared to back up any settlement you throw out with a timely repayment schedule. The last thing creditors want to hear is that you’re unsure when you’ll be able to come up with the funds.
Consider Working Through Professionals
Negotiating with creditors can be an intense experience. Not everyone feels comfortable advocating for themselves or haggling back and forth. This is why some people decide to enroll in a debt settlement program that outsources the actual negotiation process to professionals.
Consumers who go this route are responsible for making monthly deposits into a dedicated account until they’ve saved up a certain amount — at which point negotiators reach out to creditors and try to settle using the account as leverage. Some people find it helpful to have professionals working on their behalf, as you’ll see noted in many Freedom Debt Relief reviews.
Bring Up Bankruptcy as a Possible Alternative
Creditors are more apt to settle if they believe the alternative is receiving nothing. This is why bringing up bankruptcy as a potential alternative can be effective — although you should never use it as a threat, merely a potential option you’re exploring for your unsecured debts if settling is off the table. At the very least, it will show creditors you’ve done your research and are serious about finding the best solution for your situation.
There are no guarantees when it comes to settlement negotiations with creditors, but knowing what you’ll say goes a long way in your favor.