Are you looking for ways to avoid bankruptcy? If you have some cash but not enough to pay your debts in full, you can try negotiating new payment terms or even settling for less than what you owe. These negotiations can lead to a reduction in account balances, manageable monthly payments, or even a complete debt settlement.
Initial Communication
Before you speak with a debt collector, it’s best to know your rights. Debt collectors are bound by the Fair Debt Collection Practices Act and many similar state laws. If you know your rights and understand the process before you start, you will be able to negotiate better.
If you’re very behind on your monthly payments, the creditor or collection agency may have already contacted you. If that’s the case, the easiest way to start negotiations is to let the caller know you’re interested in settling the debt.
Schedule a call with the creditor or collection agency to discuss the settlement. If the creditor hasn’t called you, you can initiate the call yourself.
When speaking with the creditor:
- Be confident and firm.
- Ask for clarification if you don’t understand something.
- Do not agree to any terms unless you fully understand what’s expected of you.
- Do not agree to anything until you see it in writing.
Setting a Strategy
Your negotiation strategy with your creditors generally depends on paying what you can afford of the outstanding debt you owe. This must, of course, be balanced with the amount the creditor is willing to accept. Generally, creditors prefer to receive a sizable lump sum payment over regular monthly installments.
If that’s the case, a good strategy is to offer a one-time payment for a reduced amount. For example, if you owe $10,000 to a credit card company, you might propose a one-time payment of $5,000. This allows the company to collect a significant portion of the debt, which they may be willing to accept if they are unable to recover more.
Make sure to only offer what you know you can pay, within a reasonable time frame (like 30 days).
Start with Low Offers
You have nothing to lose (and potentially a lot to gain) by starting with low offers. This means you should definitely not make the highest offer you can afford at the beginning.
The creditor is likely to make a higher offer. If you start with low offers, it’s more likely that the counteroffer from the creditor will be closer to the range you can afford.
Maintain a Professional Tone
It is essential to maintain a positive atmosphere and a professional tone when dealing with creditors. Although the debt collector may be unpleasant, if you remain professional and positive, you are more likely to reach a settlement.
People are more willing to cooperate with those who have a positive attitude and treat others well. This may be difficult, but it’s important to achieve your goal of settling the debt.
Not all creditors will respond positively, but even if some of your creditors agree to a settlement, it gives you greater flexibility in repaying the rest.
Get a Written Settlement Agreement
A settlement agreement protects you if you make a payment to the creditor, and the creditor changes their mind and demands payment on the remaining amount. A settlement agreement will definitely be necessary if the creditor has already filed a lawsuit against you.
The settlement agreement should always be in writing. Although it’s not necessarily required to involve a lawyer, sometimes it may be in your best interest to do so.
Effects of Debt Settlement
Debt settlement can have a huge positive impact by avoiding bankruptcy filing. However, it includes the downsides of dealing with multiple creditors and the lack of guarantees of success.
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You should keep in mind that debt settlement will appear on your credit report and may negatively affect your credit score. However, the debt is already present on your credit report and decreases your credit score. Debt settlement gives you the opportunity to start rebuilding it.
You may need to consult an accountant to determine whether debt settlement will be considered a taxable gain that you must report on your taxes. Some types of forgiven debt are considered taxable gains, while exemptions are granted for certain types of forgiven debt.
Although negotiating with creditors for debt settlement is not an ideal or suitable solution for everyone, it can be an effective and appropriate option for many. Settling your debts can save you from bankruptcy and give you the freedom to start rebuilding your financial situation.
Source: https://www.thebalancemoney.com/how-to-negotiate-with-your-creditors-316120
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