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Life After Bankruptcy

What negotiating debt actually means

If you’re struggling with debt or looking to avoid filing bankruptcy, it’s important for you to know that there are ways for you to hold off your creditors and pay down your debt immediately.  While some people opt for debt consolidation to pay off their debt, others choose debt settlement or debt arbitration to negotiate down their debts.  

Debt negotiation is a process in which you negotiate with a creditor to pay just a fraction of your overall debt. You can do this yourself or you can hire someone to assist you.  You may be surprised to learn that creditors are often willing to reduce the amount owed or lower your interest rate.  This is because they want to receive some payment from you rather than have you file bankruptcy and pay them nothing at all

Negotiating debt with your credit card provider

Video: When creditors will, and won't, negotiate with you

Credit card companies are not required to negotiate with you, but many times, they will if it means they’ll make money as a result of your negotiations. This video explains a few instances in which creditors will (and won’t) negotiate with you.

debt negotiation

General tips about negotiations

Before you start the debt negotiation process, there are several things you need to keep in mind. Here are just a few tips to help you get started.

  1. Once you decide to negotiate your debt, reach out to your creditor by telephone or in person to see if they offer debt negotiation. In many cases, a creditor will not negotiate with you if you make your monthly on time because there is essentially no reason for them to do it if they are making money off of you already.
  2. Explain that you are experiencing a financial hardship and that debt negotiation is one of your last options in order to pay your creditor. Be cordial and friendly during this exchange and avoid placing any blame on your creditor for your debt.
  3. Because debt negotiation and settlement can affect your credit score and stay on your credit report, it’s important that you understand what you’re entering into from the start.
  4. Should your creditor accept a negotiation on final payment on the account, send a letter immediately with a check or money order that indicates who you spoke with, what the agreed-upon terms were and what the check is for.
  5. If you have any trouble with your debt negotiation at any time or if your creditor seems unwilling to work with you, you have the option of paying a professional to negotiate on your behalf. Don’t be fooled by debt negotiation scams though.

Mental tips to get prepared for the negotiation

In order to help get your mind focused on going through the debt negotiation process, here are several things to think about before taking the first step.

  1. Debt negotiation is one step beyond debt consolidation but not nearly as bad as filing for bankruptcy. It will affect your credit score in many cases but this should not be a reason not to negotiate if you truly negotiating debtfeel you need to pay off your account.
  2. When you start negotiating, make sure you stay low on your first offer. Your creditor will likely want to make as much money as possible off you before settling, so start lower than what you can afford and let them work to raise the settlement price.
  3. Technically, a creditor is not required to negotiate with you, so take that into account as you negotiate. You don’t want to get on the wrong side of the creditor and risk losing negotiation as an option.
  4. Once you negotiate with a creditor, that creditor is extremely unlikely to work with you again in the future. This may seem insignificant initially, but you need to realize that while you may not need Bank X right now, you could at a later time. It’s something worth considering before you negotiate.
  5. Always be prepared with everything you’ll need to plead your case to your creditor. You’re more likely to get a favorable response if you’re organized and ready to negotiate fairly.

What you’ll need to have available for your negotiation

In order to be fully prepared to negotiate your debt with collectors and creditors, you’ll need to be sure to have a few key items handy.

  1. A copy of your credit report: Your creditor also has access to this report and can clearly see if you have other forms of credit accounts open that could help you pay off your debt with them.
  2. A well-documented list of your secured and unsecured debts: As you make a case for negotiation, your creditor will want to know what sort of hardship you’re undergoing and how it will affect your payments to them in the future.
  3. Copies of your 2 most recent pay stubs as well as your spouse’s pay stubs: If requested, your creditor will be able to compare how much you and your spouse currently make and how it affects your ability to repay your debt.
  4. Your most recent copy of your W-2 form: If you’ve undergone a loss of your job, your W-2 form could help explain your hardships to your creditors, even if you have been able to keep up with minimum payments recently.
  5.  A letter to your creditor following the negotiation: Once you’ve successfully negotiated your debt, you have a small window of time to pay off your debt. Craft a letter quickly that explains your situation and includes your account number and a payment for the full amount of your negotiated debt settlement.

Other solutions for negotiating debt

Video: How to Eliminate Credit Card Debt

As you’ll see in this video, there are many options for eliminating credit card debt. If your creditor will not negotiate the total amount of your debt down, you can still try and negotiate your interest rate down to help save you money or try another one of the available options.

The aftermath of negotiating debt

By now, you know a bit more about what you’ll need in order to negotiate your debt with your creditors and get a fresh start today. In order to fully make the negotiation process worth your time and trouble, it’s also important for you to start to find ways to avoid debt in the future and stop a similar situation from happening again. Start by learning how to properly budget your money and also make your best efforts to avoid using credit altogether. It will help you to steer clear of debt and reinvigorate your financial well-being for the future.

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