Negotiate Debt Settlement With Creditors

If you want to negotiate debt settlement with creditors, it is important you understand the steps involved in a debt settlement negotiation. While the best thing to do is to contact an experienced debt settlement attorney, by knowing the steps of the debt settlement process, you can get a better understanding of how the settlement works and what the outcome is likely to be.

How to Negotiate Debt Settlement with Creditors

Credit card companies are willing to negotiate debt because the companies hope it will allow some debtors to avoid bankruptcy. When a person declares Chapter 7 bankruptcy, a credit card company often gets little to none of the money owed. Even with a Chapter 13 bankruptcy, the repayment plan is largely out of the credit card companies control and is decided by a judge. As such, a creditor will often be willing to work with a debtor to negotiate a repayment plan if that creditor believes that the debtor is likely to go bankrupt. Likewise, if a person is going to default and not pay, a creditor will sell the debt to a collector for pennies on the dollar; negotiating a settlement directly with the debtor may allow the creditor to recover more in such cases.

Understanding this premise can give you some insight into how to negotiate debt settlement with creditors. A creditors motivation is to get the maximum money they can, so if you are on time on payments, they have no incentive to negotiate with you since they will likely believe you will continue to be on time. However, if you fall behind, they may begin to fear you will default or go bankrupt. The further behind you are, the more they will be willing to negotiate... but, if you get too far behind, the debt will be sold to a collection agency.

Negotiating a Settlement

Because of the creditor's motivations, the best time to negotiate debt settlement with creditors is usually when you are about three to six months behind on payments. Creditors will be calling you this whole time, but after you are a few months behind, you can ask to speak to a supervisor or you can send a registered letter. In the letter or while on the phone, offer a lump sum settlement amount- most creditors will be more eager to settle if you can make a one time cash payment. it is common for creditors to settle for between 30-60 percent of the amount owed, so offer a settlement anywhere within this range. They may counter, or they may say no, but keep trying and negotiating until you agree to something you can both live with.

Make sure before you send any payment you get the full terms of the settlement agreement in writing. When you do send payment, send a check or money order- don't give the creditors direct access to your bank account.

Getting Help

The best way to negotiate debt settlement with creditors is to get help from a debt settlement attorney. A debt settlement attorney has experience negotiating with creditors and may have an established relationship with the company. He will also know the policies and procedures and have the negotiation skills to get you the best possible deal.