Debt settlement : negotiation techniques
If you're hoping to come to any kind of debt settlement with your creditors you're going to need to learn some negotiation techniques. But don't leave it too late; it's much easier to deal with your original creditor than it is to deal with a debt collection agency. And contacting your creditor before they contact you is an excellent opening gambit.
Make first contact
As soon as you start to fall behind with payments call your creditor to explain why. Creditors want to know that you're not some lay-about who is going to renege on his or her debt. Be honest with your creditors: if you've lost your job, been ill, had an accident or had to pay unexpected back taxes, tell them. Paint as bleak a picture as possible.
Request payment rescheduling
Ask if you can reschedule payments or set up a new debt settlement plan. Many will agree to rescheduling payments if they believe you will pay at a later date. If the customer assistant refuses ask to speak to a supervisor. Never agree to a repayment plan you can't afford.
Re-age your account
If things seem to be going well ask the creditor to 're-age' your account. This means that the current month becomes the first month for repayment and does not show up as a late payment on your file. It's unlikely your creditor will agree but it never hurts to ask.
Clear up your credit report
If you can afford partial or full repayment of the debt use this in negotiating. Ask that any negative information on your credit file be removed saving you future problems with your credit rating.
Admit your financial management has been lousy in the past but say that you are taking steps to address this. Above all don't be aggressive, this won't even give you a chance to negotiate and will immediately put you on a bad footing with the creditor.
Try to persuade the creditor to agree to a debt settlement for a reduced amount. If you've fallen behind on several payments or for several months they may be willing to negotiate in return for a lump sum payment less than the total due. It can be tricky to get them to agree but if you do so you could save up to 50% of your bill. Test the water and find out just how much they're willing to give. If they suggest a 10% reduction ask for 40%. You may persuade them to eventually right off 20% of your debt.
Look out for hidden penalties on such agreements though and make sure there's no increased interest rate or late payment fees. When you make an agreement include a request that they stamp 'payment in full' on your credit report. It's worth knowing that unpaid portions of your debt less than $600 do not have to be reported to the IRS, request this as part of the agreement. Anything over $600 must be reported and you will be liable for tax on the sum.
Dealing with debt collectors
It can be harder to deal with debt collectors than with your original creditors, but bear in mind that they have often bought your debt at less than its face value and have leeway for negotiations. Debt collectors also hate going back to the creditor saying the debt is still unpaid or in dispute: it looks bad for them and the creditor won't want to employ them next time round. Plus, if the debt collector can tidy up your file he's on to the next one and the next commission.
Everything is open to negotiation, just stay calm, talk to you your creditor or debt collection agency and see what you can do. Debt settlement could be your best move yet.