It’s tempting to think that if you avoid facing your debt head-on, it will somehow magically disappear. But the truth is that inaction just gives debt room to grow as interest accumulates. Denial may buy you time, but it’s borrowed time; everyone has to face the music sooner or later.
But what’s a consumer to do when the amount they owe is simply more than they can pay? That’s a lot of zeroes, you’re thinking as you look at how much you owe. Before doing something drastic like selling everything you own or filing for bankruptcy, consider negotiation.
Wait—you can negotiate with your creditors? Short answer: Yes. And sometimes you can reach a mutual agreement that lowers the amount of debt you have to pay. Keep reading to learn more.
Why Might Creditors Negotiate?
Creditors may be willing to negotiate when there’s a risk they’ll receive nothing. When consumers file for bankruptcy, many of their unsecured debts are forgiven. This means creditors will have to write off the debt as a loss for their bottom line. So, if negotiation means they’ll at least get partial payment, they may view it as more desirable than the alternative.
Note that creditors are more likely to settle for less if you can transfer the funds immediately, or at least within a window like 30 days. It gives you bargaining power to have a sum of money saved up before reaching out to begin negotiations. This is the ethos behind enrolling in debt settlement programs, which require consumers to make monthly deposits in an account until there’s enough to “play ball.”
Debt Negotiation: A Well-Known Secret
Before Andrew Housser co-founded the Freedom Financial Network, which includes the debt settlement organization Freedom Debt Relief, he was unaware that consumers could negotiate with creditors. He got the inspiration to start a company that negotiates on behalf of clients based on a friend’s story. This friend owed $30,000 in delinquent debt, and debt collectors were hounding him for repayment. The last straw was receiving a threatening message from a collector. This event prompted the friend to call back and yell at the collector. Yelling transitioned into negotiating. The friend was able to talk down his debt from $30,000 to $9,000.
As Housser writes, “I had no idea that creditors were open to negotiating their debts and would be willing to settle for a fraction of what was owed. And if I wasn’t aware of it, I figured the average consumer was also in the dark.”
This example just goes to show that it often feels like a “well-known secret” that people may be able to reach an agreement with creditors to pay back part of what’s owed. Instead of treating the total balance of your debt like an inflexible sum you must pay in full—which leads to all-or-nothing thinking—consider it a starting point. After all, your creditor may just be willing to lower the amount owed if you can pay the remaining balance in a timely manner.
Tips for Successfully Settling with Creditors
There are a few ways to approach debt settlement. As mentioned above, you can enroll in a program. This will involve making monthly contributions to a dedicated account until you have enough to begin negotiations. Then a team of negotiators will talk to creditors on your behalf, attempting to settle for less. As with any debt elimination strategy, there are pros and cons. Just make sure the program you choose has a track record of helping clients.
- Know your rights under the Fair Debt Collection Practices Act.
- Start by offering a low percentage of your total balance. Then work your way upward.
- Stay positive, professional and confident throughout the conversation.
- Get the settlement agreement in writing.
Yes, you can negotiate with creditors. Get a strategy before you pick up the phone or enroll in a program to increase the chances your efforts will pay off.