Debt Mediation: A Guide On How To Negotiate With Creditors

Overdue debt is intimidating and can trigger anxiety and depression. Many people are afraid to talk to creditors as they don’t know what to say. And think that they will be forced to pay a large amount of money on the spot.

But you may be surprised that talking to the creditor for relief or settlement is not that hard. Most credit companies have debt settlement or debt relief departments; if you tell them about your situation, they will listen to you.

In fact, a study by the Federal Trade Commission (FTC) shows that the debt settlement rate is nearly 50%. 

You might be in a situation of overthinking and worrying and have no idea how to deal with the problem. Therefore, we have created this debt mediation guide to teach you — How to negotiate with creditors?

How to negotiate with creditors?

Is this the right decision?

The first step is to sit down and assess all your debts. How much do you owe to creditors? Is there a way to pay debts without doing settlements? Do I have enough cash to pay a lump sum amount? 

Negotiating the debt and going on the settlement route will impact your credit score negatively. Therefore, think twice and seek help from your friends and family if you can. 

How much can I afford?

If you can’t find any help and this is the only option left, don’t worry; calculate how much cash you have. While most creditors are happy for credit mediation debt negotiation if offered a lump sum amount, some are also okay with dividing the amount into a monthly plan. However, paying a big amount at once can get you a better deal.

When deciding on debt negotiation, you must prepare in advance. When the creditor looks at your bank statement, it should reflect your current situation. If your bank statements show bills from fine dining restaurants and luxury boutiques, your debt settlement chances are next to impossible.

Prepare yourself months or at least weeks before approaching the creditor. First, pay the EMIs on time and save as much cash as you can. Then, look carefully at your bills and find where you can cut the expenditure.  

Get ready to negotiate.

Once you have everything in hand, come up with an amount to settle your debt which should be somewhere between 40% to 50%. But remember, depending on your creditor and credit history, this could be as much as 80%.

When you approach the creditor, start from an offer below 40%. For example, if you start from 30%, it will give you enough room to negotiate.

Contact the creditor

With the offer in hand, it’s time to call the creditor. Call the company and ask for the manager or financial relief department. 

Calling one time might not help. Sometimes you need to call multiple times to connect with someone a little empathetic to your situation.

When speaking on the phone, know that you are talking to an employee, not a counselor. They are there to do business, not to solve your life’s problems. So keep it professional and avoid drama. 

Keep your conversation short and to the point. Tell the exact situation of yours, and save yourself from creating stories.

Get it in writing

Once your creditor agrees to the debt settlement, get the settlement agreement in writing as soon as possible. The agreement should clearly state the amount you have to pay and the amount they excused. It should also state whether it’s a lump sum payment or a long-term plan.

This will protect you from any problematic situations that arise in the future. Because it is not unheard of for creditors to agree on debt settlement verbally and pass the remaining balance to collection agencies, don’t pay any money to the creditor before you see everything in writing.

Pay the money

Once you’ve got the agreement, pay every penny you agreed to, or if it is a long-term plan, pay in a timely manner. Don’t give any chance to the creditor to say anything against you in the future.

The whole process could be nerve-wracking and seem like an emotional roller coaster. But don’t get emotional; stay professional and friendly. After all, this is a business, and everything is negotiable in business. 

Summary

While negotiating the debt, there’s a possibility to hear ‘no’ from the creditor. Don’t get discouraged; ask your creditor what they can do. Can they lower the annual percentage rate? Or reduce the monthly payment plan or devise an alternative payment plan?

After all, they are human too, and if explained well, they can understand your situation and act accordingly.