Do you have a mountain (or a molehill) of debt staring you in the face and want to something about it? Are you unwilling to hire a debt consolidation company to negotiate debts (good for you!) but don’t have enough confidence to handle things on your own?
Many people are afraid to face off with with credit card companies or collection agencies over debts. I’m here to tell you than you are perfectly capable of taking charge – if you’ve ever worked out a household budget with your partner or haggled over the price of a table at your neighborhood garage sale, you have enough experience to approach your creditors.
Still nervous? Here are 7 tips you can use in negotiating your debts.
- Come prepared. Before you pick up the telephone or write your settlement offer letter, you need to know what you are prepared to offer your creditor.
- Do you have enough money to make a cash offer? Is it a payment plan that you have in mind?
- What is the highest amount of money you are prepared to pay?
- How do you want your credit rating to be improved by settling your debts?
- Be polite. Believe me, a collection agent or credit card customer service rep has heard it all before. They are guaranteed to be unaffected by threats or abusive language. Most of them have learned to tune out such calls as a part of their mental self preservation. If you want to be heard, be civil and clearly state your goals.
- Flash the cash. Paying cash is a time-honored strategy. Almost everyone would rather have cash paid upfront than a payment plan and are usually willing to give you a discount for it.
- Don’t make the first move. As in all negotiation, the price only goes up from your initial offer and it will be the best you’re able to get. Let the credit card company or collection agency throw out an offer first. Then you can make a lower counter-offer. If you’re forced to make an offer first, make sure it is much lower than what you are eventually willing to pay.
- Time it right. A credit card company is going to be unwilling to deal with you at all unless you are already late making your payments, usually about 90 days down. With a collection agency, the older the debt the lower the settlement they will be willing to accept.
- Get creative. Want to make a cash settlement offer but don’t have all of the cash right now? Can you gather it together in 3-6 months? Sometimes a credit card companies are willing to treat payments over 3 months as a cash deal.
- Be able to walk away. The rep you spoke with may have said things like “this deal is only good today”. Don’t believe them – this is one of the oldest sales techniques in the book. A reasonable offer will be always be accepted, especially if the rep thinks the offer you’ve made is the best deal they are going to get. If you’re not getting the deal you want, hang up the phone. When you call back, try working things out with the rep answering the phone – most is will be a different person.
Don’t be afraid of the big bad creditor wolf. They want to work out a deal as much as you do, you just need to find that sweet spot – a deal where the creditor feels they got the most they could for the debt and you feel you paid the least you could. People do this every day. You could be one of them.
Had success negotiating on your own? Leave a comment to encourage others.
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Great tips! The one thing I would add is to always ask if the creditor will remove the dergoratory reporting completely from your credit report as part of the settlement. In my experience as a Mortgage Consultant, this works most often with medical collections. Depending on your overall credit history, having a collection removed from your report can have a hugely positive impact on your scores. I’ve seen scores jump by as much as 50 to 60 points! High credit scores are critical in today’s lending environment. Even a good credit score can cost thousands more on a mortgage over the years compared to a great score.
If the creditor does agree to remove the account, ask them to send you a letter confirming the deletion. Save the letter indefinitely. Collections have a way of popping back up later even after you’ve successfully had them removed. If you have the letter, you can easily produce it to have the account removed again if necessary.
After you get all your debt paid off, it is a misconception that it improves your credit if you cancel your credit cards. Make sure to keep your credit card accounts open after you pay them off.
I doubt if you can keep your credit card open if you settle. In 99% of the time, part of the settlement deal is closing your account.
If you’re dealing with a collection agency does this advice apply. What if the debt is 5-6 years old (since last payment)?