How to Negotiate with Creditors


Whether your mailbox is stuffed full of past-due notices or your phone is ringing off the hook, you can’t ignore your creditors forever. And it’s always better to attempt to work out a deal before the situation becomes serious. If it gets worse, your debt gets sent to a collection agency.


Tips for Negotiating with Creditors

Negotiating with creditors (such as credit card companies and banks) can help your finances in the long run and will definitely save your credit. So don’t worry about being nervous when attempting to strike a deal. We’ve got you covered with the best tips for successfully working with your creditors.

Be Honest and Direct

Start the conversation with your creditor by explaining why you’ve fallen behind on your payments. Never lie or embellish the facts. Instead, come up with a brief summary of why you’ve endured economic hardship and how you’re working to move forward.

Maybe you lost your job and are currently looking for a new one. Perhaps someone in your family got sick unexpectedly, and you’ve had major medical bills to catch up on. Or perhaps you’re coming out of a costly divorce and are finally getting back on your feet. Keep your explanation limited to just a couple of sentences; otherwise, it might sound like you’re making excuses.

Always conclude with the fact that you’re ready to make things right and come to an agreement. If it’s easier for you, practice your short speech a few times before picking up the phone. That way, you’ll sound more confident and avoid getting flustered when speaking with the creditor.

Leave Your Emotions at the Door

Sometimes representatives in the collections department are explicitly trained to attempt to make you lose your cool. The guiltier you feel, the more likely you are to agree to anything they say. These pressure tactics can be intimidating, but don’t let them get the best of you. Treat the entire debt negotiation process like it’s a business transaction because that’s really what it is.

At the end of the day, that person on the other end of the line is going to go home to a nice dinner and not think twice about the conversation the two of you had. You should do the same. Stay calm and professional. If you find yourself feeling bullied or losing your temper, quickly end the conversation and call back at another time.

You don’t have to come up with an elaborate story. Simply excuse yourself and say that something has come up, then just hang up the phone. You can always try again later once you’ve got your head back on straight.

Know Your Rights

There’s a fine line between a debt collector attempting to bully you and illegally threatening you. That’s why it’s essential to know precisely what your rights are in the debt negotiation process.

Consumer protection laws like the FDCPA are in place to ensure you are not overly burdened by creditors or collection agencies. For example, they may not call you before 8:00 a.m. or after 9:00 p.m.

You can also write them a letter requesting that they stop contacting you. They’re required to oblige and may then only call to inform you of a specific action being taken upon your account.

If you believe they have violated any of your rights, you can report it to the Consumer Financial Protection Bureau (CFPB), Better Business Bureau (BBB), or your state’s attorney general.

Keep Diligent Records

Tracking every step of the debt settlement process is vital. Otherwise, you might get stuck in a “he said, she said” situation. And let’s face it, that’s probably not going to work out in your favor. So, your first step is to read and save all the mail you receive from your credit card companies.

You’ll also want to make copies of any letters you send out, just to have verification of each channel of communication. Be sure to send everything via certified mail, so the credit card issuer can’t claim they never received your letters.

In addition to keeping records of your mail, you’ll also want to take notes of everything that happens on your phone calls. Record the date and time of the call, as well as the name of the representative you speak with. Then write down the key talking points you discuss. This gives you a handy reference to use later and helps keep you focused during the conversation.

Create a Financial Plan

Before you even contact a creditor to negotiate a deal, you need to develop a game plan, so you know exactly what you’re willing to offer. For example, most creditors would rather take a lump sum payment than a partial payment or monthly installment plan. This is because it ensures they get paid quickly, instead of risking more missed payments.

This situation is better for you, too, because you avoid paying extra fees or interest on the new payments. But whichever type of plan you decide on, first take a look at your finances and figure out what exactly you can afford. You don’t want to put yourself in the position of not being able to make your payments again.

Do you have some cash set aside that you can offer as a lump sum? Is there anything you can cut out of your budget to make new monthly payments? Have a maximum dollar amount in mind so you can negotiate in your own best interest.

Avoid Going to Collections

Having your debt sent to a debt collector is best to be avoided if at all possible. Get started negotiating with creditors early so that you can work directly with them. Once your account is sent to collections, it’s noted on your credit report and can cause severe damage to your credit score.

While the impact on your credit score lessens over time, the collection stays on your credit report for seven years. That can affect your future ability to get approved for loans or credit cards, and you certainly will pay for it in higher interest rates.

Demand a Contract

Once you’ve reached a settlement agreement with a creditor, make sure they send you a written agreement stating all the details of your arrangement. If they don’t, there is the possibility that they could make a different note on your account. As a result, you may have to go through a different payment process than the one you agreed on.

Get it in writing before you make a payment. Ensure the creditor includes the full amount you owe and any payment terms such as length of time (if doing a monthly plan), interest rate, and fees.

You should also have them agree to remove the late payment from your credit report. This is an easy step to repair your credit history, and creditors are usually happy to do this for you, especially if you’re paying them a lump sum.

Work with a Professional Debt Settlement Company

If you find yourself completely overwhelmed or unprepared for the debt negotiation process, consider getting help from a professional. Reputable credit counseling agencies or debt settlement companies can look at your finances to help you decide the best path going forward to settle your debts. They can also call the credit card company or creditor on your behalf to reach an agreement.

This can work out well because it’s your credit counselor’s job. Unlike you, they aren’t emotionally involved in the situation. But you’re also a paying client, so it’s in their best interest to get you a good deal.

If you have so much credit card debt that you don’t think you’ll ever be able to repay it, you might consider talking to a bankruptcy attorney. Declaring bankruptcy comes with huge financial repercussions, so this is not a decision to be taken lightly.

If your debt burden stems primarily from student loans, you probably won’t be able to get those deleted through a bankruptcy. Therefore, ensure you exhaust all of your other options before filing for bankruptcy because it will take years to recover.

Move Forward with Better Credit

Once you’ve gone through the debt settlement process, it’s time to create a game plan for moving forward. First, start working on repairing your credit scores so you can rebound from your debt as quickly as possible.

Credit repair takes time, so the sooner you begin, the sooner you’ll see results. There are several ways to remove negative items from your credit report, which will automatically contribute to a higher credit score.

On top of fixing your credit scores, you should also look at your finances to understand how you got into so much debt in the first place. You can’t help unexpected expenses that crop up because of life, but you can attempt to prepare for them. Pare down your budget so you can put extra money into your savings account for a rainy day.

Once you have a sizable nest egg set aside for emergencies, you can loosen the slack on your spending. Just remember to keep contributing to your savings and never charge more than you can pay off at the end of each month. If you can follow these simple steps, your debt problems will become a thing of the distant past.

Lauren Ward
Meet the author

Lauren is a personal finance writer who strives to equip readers with the knowledge to achieve their financial objectives. She has over a decade of experience and a Bachelor's degree in Japanese from Georgetown University.