Do you feel like your debt is blocking your financial freedom? Are feelings of anxiety, guilt, and stress starting to take over as the credit card bills pile up in the mailbox? Hold off on filing for bankruptcy just yet and consider debt negotiation.
Debt negotiation is one kind of debt relief strategy available to those struggling with personal debt. It allows the debtor to negotiate with the creditor to reduce the amount owed or, in some cases, have the debt forgiven entirely.
As reported by the American Fair Credit Council (AFCC) in the Regan Report of 2020, over 98% of debt settlement negotiations resulted in the client’s debt being reduced. In addition, the average consumer savings was $2.64 for every dollar of fees assessed.
This could be a game-changer for someone in deep debt, as these savings could mean the difference between financial freedom and bankruptcy.
Of course, reaching a deal with a creditor can be a challenge in the park. Without the proper guidance and expertise, debt negotiation can be a complex process that can fail to deliver the desired results.
But don’t worry! This article is here to help. We’ll provide a comprehensive overview of the debt negotiation process and offer practical tips and advice on successfully negotiating with creditors.
How does debt negotiation work?
As the name implies, debt negotiation is negotiating with creditors to agree on how or what you will pay your debts. This typically involves proposing an offer to pay creditors a lump sum amount or settling the debt for less than what is owed. For example, if you owe $10,000 in credit card debt, you may propose to pay a range of $4,000 to $6,000.
For debt negotiation to be successful, the creditor must agree to the terms of the settlement. This means you must be willing to negotiate and compromise with creditors to reach an agreement that benefits both parties.
The negotiation process can vary depending on the creditor. Some creditors may require a lump sum payment, while others prefer to settle your debt over time. Some creditors may be willing to negotiate a reduction in interest rates or lower monthly payments.
There are two ways to engage in debt negotiation:
- Hire a professional debt negotiator: This may be either a debt settlement lawyer or a debt settlement company. Skilled negotiators are experienced and have specialized knowledge of the complexities of the debt negotiation process. They will work with creditors on your behalf and negotiate a settlement that meets both parties needs. The cost of the service may vary, but usually, a fee is taken as a percentage of the amount saved. However, some states’ laws may prohibit debt settlement companies from charging upfront fees.
- Do it yourself (DIY): If you’re feeling adventurous and confident, you may tackle the debt negotiation process independently. Doing it yourself requires research, knowledge, and a lot of preparation. It’s highly recommended to research your state’s creditor and debt laws to ensure you comply with all legal requirements. You’ll also need to take the initiative to contact the creditor, make your offer and prepare the necessary paperwork.
How to negotiate a settlement with a debt collector
Research about the debt
When a creditor or debt collector contacts you about debt repayment, they’re usually obligated to provide you with a debt validation letter. This letter should provide information about the amount you owe, the creditor’s contact information, and the date when it was due. The letter must be sent within five days of the initial debt collection contact.
When you receive a debt validation letter, reviewing the information carefully is essential. This will help you determine if you owe the debt and if the debt is still valid. If you don’t believe you owe the debt, or there are inaccuracies in the letter, you can dispute the debt in writing.
Once you dispute the debt, the creditor or debt collector must provide additional proof of the debt before they can continue trying to collect it.
Plan your negotiation strategy
Once you’ve determined that the debt is valid, it’s time to prepare your negotiation strategy. Decide on an amount and payment terms that are reasonable and that you can realistically afford. To do this, consider your income, budget, and expenses. Make sure the debt repayment amount doesn’t significantly disrupt your ability to cover your necessary costs or put you into further financial hardship.
Hence, it is recommended that you offer only what you can afford rather than making promises that you cannot keep.
To simplify things, use a piece of paper or your computer to list all the debts you need to negotiate. Next to each debt, write down the balance you owe and the total amount you’re willing to offer. Include the amount paid each month and when the debt will be fully paid. Include any other conditions you may want, such as ceasing collection activities or a reduction of the interest rate.
Also, remember to set aside emergency funds to cover unexpected events, such as job loss or illness. This can help you avoid future debt and stay caught up on payments.
Contact the Creditor for Negotiations
Once you prepare a strategy and offer, you can begin negotiations with the creditor. This is typically done over the phone or by mail. It’s essential to remain calm and professional during negotiations.
Be polite but assertive. Explain your financial situation, and why you can’t make the payments you previously agreed upon. Ask if the creditor is willing to accept a lower payment amount and when the debt will be fully paid off. If the creditor is agreeable, request that they send a written agreement outlining the details of the negotiated repayment plan.
Record the Agreement
Once you have reached a debt settlement agreement, record the details and keep copies. Include the date of the agreement, the amount of the settlement, and the terms. It’s also important to keep records of all emails and letters related to the negotiations.
Making sure you have a clear record of the debt settlement agreement helps protect your rights if any future issue arises.
Concluding thoughts
Negotiating a debt settlement with a creditor or debt collector can be stressful. However, when done correctly, it can help you pay off debt without negatively impacting your credit score.
It’s essential to review the debt validation letter carefully, plan a negotiation strategy, contact the creditor for negotiations, and keep records of the agreement. With these steps, you can negotiate a debt settlement that works for you and the creditor.