It's No Secret: The Going Got Tough.
There comes a point between the rising cost of living and the lack of sufficient pay where your every day needs become greater than your ability to pay off your credit cards. Credit card delinquencies are now higher than they’ve ever been in history, so it’s no coincidence that you’ve found yourself looking for every which way to get out of debt.
While it’s not the easiest task to perform on your own, it is still very possible to negotiate with your debtors. Every day debts are being settled for amounts less than what is truly owed. It happens with individuals and businesses across debt management programs and bankruptcies alike. As soon as it becomes no longer possible to effectively pay your debt in monthly installments, you should either reaching out to your creditors, or talking to a debt management company that professionally negotiates with creditors on the behalf of customers like yourself on a daily basis.
First and Foremost, Verify Everything.
Verifying your credit report
The absolute first thing that you want to do is make sure that all of the information that collectors and creditors have on you are correct. This helps both relieve yourself of any debt which is not truly yours, and protect you in the event that you settle a debt where issues would’ve arose due to wrong information. You may feel confident that the information you have on file is correct, but, across various studies, the FTC has found that as many as one in five credit reports can contain a significant error. You may be the one giving information to your creditors, but mistakes still happen when they have to pass this along to the reporting bureau.
What you want to do is log into a site like Experian where you can view all the details of your credit report. This way you can scrub through every name, address, and detail that your creditors have on you. In my experience, I’ve found a few inaccuracies which had to do with my address on my report. Each inaccuracy can be directly disputed on the website, allowing you to dictate what is wrong with the information, and provide the correct information which should be on file. If you’ve never done this before, I suggest you start immediately.
When you’re scrubbing though your report, keep in mind to look for things like:
inaccurate names or addresses.
accounts belonging to someone with a similar names
accounts opened as a result of identity theft
Inaccurate balances or payment dates
Incorrect closed or open status on accounts
and more.
Now, verify your debts.
After this, make note of any collection agencies or banks who have react out to you in an attempt to collect on a debt. Because these debts are no longer with the banks you did business with, you want to request letters to verify that the accounts and amounts you are being held responsible are correct in the same way you did with your credit report.
You may find that collection agencies have the wrong information about the debt you owe. This can include when the debtor sold the account, what bank it came from and who's name it's in.
Know the fight you're picking
The first thing you’ll need to understand when you’re negotiating with your creditors, is that you have to starve them a little bit. Look at it this way, you have a minimum payment for a reason. Creditors set this up as a low, comfortable amount to make you feel as though you are keeping up with your obligations, but you’re just feeding them the interest that you accumulate on your balance instead of getting ahead. They may also use this as a reason to say that you’re fully capable with keeping up with your debt obligations, and not see much of a reason to negotiate your account. Remember, it’s more profitable to keep you in debt, than to let you simply pay it off.
The times that a creditor is more likely to be open for negotiation, is when you instill a fear that they may not continue to make money off of your account. This is usually done by cutting of your payments for an extended period of time. After a few months, if you make an offer, you leave your creditor with two choices:
Sell the debt to a collection agency for pennies on the dollar, or
Accept a lower payment, which sometimes can be as low as 20%-30% of the outstanding balance owed.
If you’re dealing with a collection agency, rather than your original bank, you may have an easier time negotiating. Often times, these agencies may get the ball rolling by sending you an offer first. That being said, the first offer is never the best. Remember what we just said. These companies buy your, and hundreds of other peoples debts, for pennies on the dollar. There is a LOT of leeway for negotiating a settlement with these people because of this.
Assess your own financial situation beforehand
Don't go all-in from the beginning.
As you make offers to a creditor, its importation to not negotiate for more than you can afford. This should be obvious, as that’s usually the reason in which someone finds themselves in such a situation in the first place. The key here, though, is that you are not to offer exactly how much you can afford to settle your debt. It’s fair game to lowball collection agencies. Some back and forth is expected on both sides of the negotiation. You want to leave yourself with some room to negotiate if and when your initial offer is rejected by the current creditor.
You can still break up the payments.
Also remember that the payment schedule is another term that can be negotiated on. Often times, credits and collection agencies will split up lumpsum payments into 3 or 6 different monthly installments.
Know what to ask for
Just getting rid of an account doesn’t always bring you the optimal results for your credit score. Derogatory marks for late payments and account closures can still exist on your record when you pay off an account. These negative marks are definitely something that you would want to bring up in conversations with your creditors.
Pay-for-delete
A very common way to resolve accounts and remove collection history from your credit report is referred to as “pay-for-delete” or “pay-for-deletion”. This is an exchange in which a creditor removes the record in which your debt was sold to a collection agency from your credit report.
Bear in mind, this “pay-for-delete” method does not remove late or non-payment history with a creditor, but will help you avoid or recover from the damage that a collection referral does to your score.
Have a paper trail
Many people have an inherent distrust for banks. And that is rightfully so, with all the acts of predatory lending and term changes that they perform on accounts without your consent. This is why you want to have a paper trail which shows what you and your creditor were able to negotiate.
This way, if your creditor was to act in bad faith, you still have, in writing, the agreement that was supposed to be acted out by both parties. Different types of “paper trails” could include:
- Certified mail
- Email messages
- Docusign
Ideally, you want anything that can be backed up by a third party. This is especially present in the digital examples that we mentioned, as they are both server backed by another company outside of yourself and your creditor.
Frequently Asked Questions
Payment terms, dates, and comments from creditors on your report are all different pieces which can be negotiated when trying to settle and account.
Frequently Asked Questions
If you're delinquent, it's likely that the damage is already done. Yes, you may see a short term increase once the settlement is paid and the account is closed as a result, but this is one of the first steps to resolving your debt.
Unfortunately if you cannot afford to pay off the accounts, you will either have to continue making minimum payments or stop paying and be harassed by collection agencies. If you want to settle but don't feel as though you can do this alone, there are companies that exist to assist in these processes.