How to Negotiate a Debt Settlement With Creditors

Having good credit is always important, regardless of the state of the economy. Good credit is often the key to low financing when you are looking to buy a car or home. However, many have some credit challenges, and some may need to negotiate a debt settlement with a creditor when an account becomes delinquent. To ensure your credit report is not adversely affected, you want to gather some information and correctly approach your creditors. This will give you an opportunity to perhaps negotiate a palatable settlement.

Instructions

1

Get a copy of your credit report. This is always a good idea when looking to negotiate your credit card debt because the report will give you an exact picture of your debt and how it affects your credit. You can obtain one free credit report annually from annualcreditreport.com. The key in negotiating debt is to pay the least amount of money and obtain the most positive outcome on your credit report.

2

Note the amount of the debt, status, collection activity and how long the account has been open. Having this information will insure the information you need is readily available when you speak to the creditor. Your credit report will also ensure you speak to the right agency, in case your account has been referred to another agency for credit collections or sold to another company.

3

Call your creditor and discuss your debt. Creditors are willing to work with clients who initiate dialogue. Generally, collections occur as a result of no contact. Thus, it is always better to be proactive when credit problems occur. Be prepared to explain your current financial situation and reasons for your predicament, whether layoff, injury, family crises or others. Make sure you tell your creditor that it is important to you to clear negative debt items on your credit report. Maintaining a positive credit rating and reducing your debt should be paramount to you.

4

Evaluate your options when negotiating debt. You can pay all or some of your debt and negotiate with the creditor the rating you will receive on your credit report. Depending on the age of the account, you may be able to negotiate your debt before any negative items appear. The newer the debt, the more likely you can achieve a positive outcome on your credit score. The older it is, the more likely you can settle your debt for less money.

5

Advise the customer support rep that you want to negotiate a settlement to pay off your account. Increasingly, line level employees have some ability to negotiate the terms of your outstanding debt. This is often limited to interest rate reductions, lower minimum payments and/or providing you with an extended grace period. If this meets your credit needs, then you have resolved the issue. If it does not meet your needs, do not be afraid to request a supervisor.

6

Stress to the supervisor the importance of negotiating your debt and protecting your good credit report. Assuming your debt is in collections, you will have two options: Pay your negotiated debt in one lump sum or set up a payment plan. Paying a lump sum will give you the best bargaining power in asking for a positive credit reporting. If this is not possible, perhaps spread the payment over 60 to 120 days. For example, if your total debt is $10,000, you may offer to settle for 60 to 65 percent of the balance. You may make a lump sum of $6,000 or perhaps make payments over four months that will total $6,500. The most important thing is to negotiate for what you can reasonably do to settle the debt. You do not want to establish terms beyond your reach.

7

Obtain a written agreement for the new terms. You can type up your own agreement and send to the creditor for approval or you can ask the creditor to mail you an agreement. In either case, you will want a signed agreement from the creditor for the new terms. Ultimately, you want a "paid in full" on your credit report. However, you may have to settle for "paid as agreed" or similar. If at all possible, you will want to ensure that all collection activity is removed from your account.