5 Tips for Negotiating with Your Creditors

It’s difficult to live a life completely free of debt. Even the super rich will take on debt as leverage in order to grow their wealth quickly. Debt is good as long as it is applied to the right purpose and remains manageable. Unfortunately, for a wide range of reasons, debt can get out of hand. What follows is seemingly relentless chain of calls from creditors demanding you pay up.

Do not forget to follow up from a business conference.

It’s a conversation everyone dreads especially because the inability to settle the debt may have serious repercussions on one’s credit options in the medium and long term. But creditors aren’t as unyielding and unreasonable as many imagine them to be. You can negotiate more favorable terms. Here are some useful tips.

Top 5 Tips for Negotiating with Your Creditors

1. Have a Consistent Story

Your creditor likely doesn’t have the patience to listen to all the reasons why you are struggling with your bills. They may want to be empathetic but ultimately, they have a business to run and bills to pay too. You will have a better shot at getting a positive response if you keep your story simple, consistent and result-oriented.

Briefly let them know you are going through a rough patch. More importantly, list the things you are doing to help you get back on track. If you are dealing with multiple creditors, keep your story consistent across the board. You may need to bring them all together at some point. If each of them has a different story, it’ll erode your credibility.

2. Stay Calm

A debt crisis can be an emotional time. You may be staring at losing your home or car that has so much of your savings and life experiences tied to it. Nevertheless, you have to do whatever it takes to remain calm in your conversations irrespective of what the creditor says during your phone call.

Losing your temper or breaking down in tears won’t move the discussion forward. If you feel that you are nearing breaking point, request the collector to call after a couple of hours or the next day then hang up. If you find the representative to be overly abrasive, suggest to them that you’d want to record the call. That will usually prompt a more professional tone from them.

3. Ask Questions

Debt collectors are experts at intimidation and other tactics meant to scare the debtor into making payment. They’ll threaten you with a lawsuit and the loss of your property. But collectors aren’t always ethical and some threats may in fact be illegal. Ergo, don’t accept threat without question.

If a collector says they are going to sue, calmly find out when you or your lawyer can expect to be served. If they claim they are going to take money out of your bank account, ask when they expect to do that. You don’t want this to degenerate into a shouting match so the key is in keeping your questions respectful.

4. Know Your Financial Limits

Before you engage your creditor, study your monthly income and expenditure meticulously. Identify any expenses you can live without and finally determine how much money you have to pay debt instalments (see how to calculate free cash flow). Creditors become more open to your ideas if they see you have done the background work.

That being said, if you do agree on a payment plan, chances are that you’ll steadily pay more as your income increases. Therefore, as you negotiate the plan, make sure you have some headroom in your income after expenses that will allow you to increase your repayments even before your income increases.

5. Get Third Party Help

Negotiation is hard work. And the fact that it depends on the mutual agreement of the parties involved means no matter how well you negotiate, the outcome depends on how the other party responds.

If you are having difficulty making a breakthrough or feel a little intimidated negotiating with a big name creditor, engaging an attorney or a credit counseling agency will help.

Debt problems don’t have to become a debt crisis. By negotiating with creditors, you can come up with an arrangement that works for everyone.

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