When personal debt becomes so overwhelming that you simply cannot pay off all of your debts, you may feel like you are at the end of your rope. Before you consider something drastic like filing bankruptcy, see if you can negotiate settlements with some of your creditors. Most creditors feel getting paid for some of the debt is better than not getting any of it at all, so they may be willing to settle with you. This is a challenging process, but you can do it. Remind yourself that this is the best way for you to escape this problem with your credit rating still somewhat healthy, since bankruptcy, charge-offs, and judgments are the other options – and all of those debt-resolution options are more damaging to your credit report than a well-negotiated settlement.
• List out the accounts you need to settle and determine how much you can pay on each of them. Decide what your bottom line is on each account. Make sure you really can pay what you are willing to offer, and figure out what percentage of the debt each settlement will be. Fifty percent? More? Less? Write is all out so you won’t get flustered while negotiating on the phone with the creditor.
• Identify who currently handles the debt in question. If the debt has been sold to a collector, ask the collector to return it to the original lender so you can deal with the lender directly. You may have to make this request in writing.
• Negotiate confidently and graciously. Call the lender and explain what you are doing. Make sure the lender knows that you are:
1. Uncollectable- Tell them they will gain nothing by suing you.
2. Working out settlements with all your creditors equally.
3. Doing your best.
4. The reason you can’t pay is legitimate. Have a prepared one sentence statement explaining how you are a reliable borrower who has been stuck in an unforeseeable bad predicament (unemployment, accident, disability, medical emergency, bad divorce.)
5. State that you are desperate to preserve your good credit standing, which is why you are initiating the settlement.
• State how much you can pay and stick with it. You might want to start lower than your top offer, but once you hit your highest amount possible for repayment, refuse to budge. Be polite but firm. Be prepared for some pretty strong pressure to increase the amount of repayment.
• Anticipate a refusal on your first call. The first line of defense at these places usually do not have the authority to negotiate with you, so you’ll probably just be told the answer is no. DO NOT GIVE UP. Instead ask for a manager, and then for the manager’s manager. If the person refuses, end the call politely and try again later.
• Negotiate until you get the settlement you want. It may take several calls over several weeks, and you may feel like you’re asking for the impossible, but perseverance will pay off.
• Follow up with a request for the creditor to remove any negative information on your credit report. Ask them to label your account “paid as agreed” or “nonrated”. Get the arrangements – the settlement amount and the promise to label the account as “paid as agreed” or “nonrated” in writing.
This process is exhausting, but it is worth it if you can save your credit rating. Persevere and tell yourself you can do it!
