How to Negotiate Settlements With Creditors

When an individual ends up owing a large amount of money to creditors, it is generally in his interest to negotiate a settlement for a payment plan. This settlement has a number of benefits for both the borrower and the creditor. It allows the borrow to break free of harassment from his creditors and to begin to put his financial life back together without sinking deeper into debt. It gives the creditor assurance that the borrower is committed to paying back at least a portion of what he owes.

Instructions

1

Outline your financial resources. Before beginning negotiations with creditors, explain to them clearly and truthfully what you are able to pay. Outline all your sources of income as well as your monthly expenses. This will allow creditors to know exactly what they can demand that you pay without trying to squeeze blood from a stone or place you deeper into debt.

2

Make an offer. The creditor will generally begin negotiations as he entered them -- by demanding you pay what you owe. In response, you should make a counter offer, one in which you offer to devote a significant portion of your spare income to payments on the debt. In your offer, state a specific time period over which the debt will be paid and a specific rate of interest.

3

Make a counteroffer. After you have made your first offer, the creditor will generally come back with a counteroffer of some kind. For example, the creditor may ask that you pay more of the debt or that you pay it over a quicker period of time. Make a second offer in response to his offer. Repeat this process until you have come to an agreement you can live with. Remember: you should always know the most that you can possibly pay in a single month. Do not agree to pay more than this amount, or you will only end up deeper in debt.

4

Ensure that the settlement doesn't hurt your credit. When you've reached a tentative point of agreement with creditor, demand that he report the settlement to the credit bureau in one of two ways: he should report it as paid in full or ask that it be deleted entirely. If the credit reports that some of the amount owed was written off, this will pull down your credit score for up to seven years.

5

Settle on an agreement and get it in writing. After you have reached an agreement, demand that the creditor send you a copy of it in writing. If he does not, send him a letter outlining the terms of agreement with a note stating that you consider these terms confirmation of a verbal agreement. Keep a copy of this letter for your files.