How to Negotiate Debts Down

The act of negotiating debts down may feel impossible, especially in a weak economy, or if collection agencies are aggressively hounding you to pay your debt. However, more often than you think, creditors will be willing to negotiate a deal with you in which you pay back a lesser amount of debt than the amount you actually owe. If your financial situation is dire, this may be a viable option to help you get out of debt faster while making your payments more affordable. Negotiating this type of deal requires finesse, along with a little research.

Instructions

Before You Begin Negotiations

1

Know the statute of limitations on the debt you owe. This statute of limitations stipulates the amount of time a creditor has to collect your debt by filing a judgment in court against you (essentially suing you for failing to pay the debt). If this time has passed, the debt is no longer collectible, and can be "charged off" by the creditor. The statute of limitations varies by state. Knowing this statute is essential, as it can help you in the negotiation process.

2

Assess your debt situation. Are your debts older balances you cannot pay off? Are you unable to make even the minimum payments on your unsecured debts? Can you make minimum payments but then are left with little-to-no discretionary income? Figuring out what you can realistically afford will help you negotiate with your creditors more effectively.

3

Determine your starting negotiation point. For example, if your debts have passed the statute of limitation for collection in your state, you could offer to pay 25 percent of the total debt you owe, and see how your creditors respond. If you're still making payments on your debt, you'll likely have to start higher than 25 percent. Remember, the odds are in your favor: creditors want to be paid something, not nothing at all.

The Negotiation Process

4

Write a letter to your creditors that outlines your debt settlement terms. Avoid speaking with creditors over the phone, as this eliminates your ability to receive agreed upon settlement terms, or a refusal to negotiate, in writing. Having all of the details in writing ensures you have official records of your negotiation that you can produce in court should the situation come to that, such as if the creditor suddenly decides to sue you or to more aggressively pursue debt collection outside of the agreed upon terms.

5

Copy all letters you send to your creditors, as well as those you receive from them. Always use certified mail to make sure that the creditor must sign for every letter you send. This ensures there always will be a verifiable paper trail and proof that you contacted your creditors, and that they agreed to negotiate with you.

6

Control your tone with your creditors in writing, in person and over the phone. You do not want to appear too eager to settle your debt. If your creditors sense you are overly desperate to settle the debt, this gives them an advantage during negotiations.