Negotiating with creditors with whom you still enjoy a good standing is an important skill – and very different from negotiating with debt collectors. The idea is to avoid your credit problems reaching the point where debt collectors and credit repair are even part of your life.
So how can you negotiate with creditors in a way that will keep you from reaching a point where you will have credit problems? Here are some strategies…
1. Negotiating Late Fees
If you normally have an excellent payment record with a particular creditor, but you make a late payment for any one of a number of reasons, you may be able to negotiate your way out of it.
The key to the whole effort is going to be your otherwise stellar rating with that particular lender. If late payments are more than occasional, you won’t have much credibility in attempting to negotiate.
But assuming that a late payment is an isolated event, you can and should contact the creditor in an attempt to wipe the slate clean, or at least minimize the damage.
Here are some tips:
- If you know in advance that you won’t be able to make a payment on time, contact the creditor in advance and ask for dispensation – some will give it to an otherwise good borrower.
- If there is an unforeseen circumstance that is causing the late payment, let the creditor know that, and be prepared to provide written evidence of the issue.
- Assure the lender that it is a one-time event.
- Ask that either the late fee be waived, or that your account not be reported as late with the credit repositories.
On that last item, I would prefer not being reported late to the credit repositories. If you can also get the late fee waived, great. But if it’s choice between one or the other, go with the unreported late. It will be a much bigger benefit to you in the long run.
2. Negotiating Interest Rate
This can be tougher to negotiate than a late payment, because interest represents a continuing income stream to the lender. But that doesn’t mean that negotiating a lower rate is impossible.
Before contacting the lender, make a list of all the reasons why you deserve to have a lower rate. This can include the fact that you are a long time customer of the lender, that you have an excellent credit history with them, or that you like doing business with them and would rather not be forced to meet your credit needs elsewhere.
The last point is worth emphasizing. If you do have a better interest rate option with another lender, you should make the current lender aware of this. If they want to keep your business, putting them in a competitive interest rate situation will force them to make concessions.
You must be ready to make a case for each of these points, and never assume that they are self evident to the creditor.
3. Lowering the Amount that You Owe
This type of negotiation is more involved than challenging late fees or high interest rates. What you’re doing is asking the lender to lower the amount of money that you owe them. Most will not do that willingly.
The strategy here is completely different than in either situation above. Here, you have to make it clear to the lender that your financial situation has fundamentally changed for the worse, and that you will need to lower your debt if there’s to be any hope of paying any of it at all.
That means that you will have to apprise them that you’re in the middle of some sort of financial difficulty. The loss of a job is a prominent example, but so is a major medical event, providing for an extended family member, or even business difficulties. Be prepared to present this information to the lender, and also to provide documentation to prove the point.
If it is a revolving debt that you are negotiating, then you might even consider mentioning that bankruptcy is on the table. The lender will often respond to this because unsecured creditors typically don’t get paid anything in a bankruptcy situation. That will make them more willing to settle, under the “half a loaf is better than none” doctrine.
One final point in having your debt reduced. Before even making such an offer, you must make sure you have the cash available to pay the reduced debt amount immediately. If you owe a creditor $4,000, and they agree to accept $2,000, you must be prepared to send that money in within the time allotted in your agreement. The rapid payoff of the reduced balance is the primary motivation for the creditor to lower the debt amount in the first place.
4. Get Everything In Writing
Anytime you’re negotiating with a creditor, but especially if you’re trying to get a reduction in debt, you must get the terms of any agreement in writing. A verbal agreement is simply not binding, a written agreement is.
That will not only eliminate any misunderstanding, but it will also be absolutely necessary in the event that you need to send payment to pay off a reduced debt amount. You never want to send payment under such an arrangement until all of the terms have been agreed to in advance, evidenced by a written acknowledgment of the changes.
5. Be Consistent
You should fully expect that negotiations with a creditor will require several phone calls, and even a visit to a local branch if one is available in your area. That being the case, you must be consistent in whatever you are telling the creditor. If you tell a representative one story on Monday, but another on Friday, you’ll lose credibility in the negotiation.
For that reason, keep written records of all your conversations with the creditor. And be sure to review them before making any contact with them. You should also make sure that you have them handy in case they call you unexpectedly.
6. Don’t Play the Negotiation Card Too Often
Negotiating with creditors is one of those activities that are most effective when it is done the least. As noted above, if you’re repeatedly asking the same creditors to negotiate, your efforts are highly likely to fail. If you become a serial negotiator, you’ll most likely cross the line over into credit distress – and in that case you will need professional help to deal with your credit. More on that in the next section.
7. Stiffen Your Spine – Negotiating With Creditors is Not for the Faint at Heart
Negotiating with creditors is certainly not something that everyone can do. It’s even probable that the average person is not equipped to do it. You need to have a quick mind and a strong spine. Lenders don’t just roll over when you try to negotiate with them – they will push back, that’s when you need to get tough.
If you don’t think you can handle that yourself, you can always enlist the support of professionals who do this all the time. A law firm that deals with credit issues might be your best course of action. They will know the laws in your state, and they will know exactly what works, and particularly what works with certain lenders.
If you don’t think you can handle the negotiation process on your own, consider getting help as early in the process as possible. Your ultimate purpose should be to avoid the credit destruction and collection calls that come when your credit situation has gotten seriously bad.