Use these four easy steps to negotiate debt and save money with any creditor
If you just can’t make your payments, there is a way to cut the amount of debt you owe in half and keep it from destroying your credit.
Most people think that debt is a done deal. You borrowed the money, now you have to pay it back. All of it.
While that's mostly true and you should always try to pay back money you borrowed, there is a way to get out from under that debt without paying it back. By the time you finish this video, you’ll have the step-by-step process I used to negotiate debt, wiping out $6,500 from a $10,000 debt owed to credit cards and a signature loan.
Today’s video is the ninth in our debt payoff series, an entire series on ditching your debt from creating those goals that are going to motivate you to some tricks I’ve learned to pay off debt.
Think of it like a TV series, at the end of this season, you will have all the tools you need to finally get out from under that crushing debt. Click through to the YouTube channel to watch the entire series and learn how to crush your debt and boost your credit score.
Why You Need Debt Negotiation
We have covered an insane amount of information in the series. I shared a complete debt payoff system, a unique unbudgeting method that finds extra money in any budget and we’re three videos into boosting your credit score so you never have to worry about rates again.
I would love for everyone to be able to use this system to pay off their debt as fast as possible and be done with it.
But it just isn’t going to be that easy for everyone. If you’ve just gotten too far over your head, there may be no way you can make your monthly payments.
That’s when you need to consider debt negotiation, working with your creditors to pay what you can and wipe out the rest.
I’m going to share the exact process I used in 2009 for negotiating $10,000 in credit cards and signature loans down to $3,500 so I know it works. I’ll show you the two best times to start negotiating, whether it’s with a lender or a collection agency.
I’m also going to give you some ammunition, a list of things you can ask for in the negotiation and the answers to the most common rejections you’ll hear.
Debt Traps to Avoid Before Negotiating with Creditors
We’re going to get to all of that but I want to warn you about two things right now, two huge traps for anyone in your situation. That’s bankruptcy and debt settlement companies.
First, I know filing bankruptcy can seem like a great idea. Just wipe everything clean and start over. It is NOT that easy. Bankruptcy stays on your credit report for 10 years. Any credit during that time is going to be at astronomical rates and it’s actually going to end up costing you more than the debt negotiation process we’ll talk about.
Second, debt settlement companies are going to do exactly what I’m going to show you how to do in this video…except they’ll charge you a minimum of $3,000 to do it and it will take three years or more. I worked part-time as a credit counselor while getting my degree, those debt negotiation companies are useless and only out to take what money you have left.
An Easy Process to Negotiate Debt and Save Thousands
Alright, now that you can avoid the two biggest debt traps, we can get started with the good stuff. I’m actually excited. This isn’t a great situation to be in but understanding this process is going to get you to a good place. You’re going to finally be able to get on your feet, get out ahead and you should be excited about that.
Let’s look at the big picture of debt negotiation then I’ll break down each step. There are four steps here; Understanding your debt situation, Getting your information together for each loan, planning your negotiation strategy and finally negotiating.
What, you thought it was just about picking up the phone and asking the credit card company to take less than you owe?
If creditors made a habit of just cutting people’s debt anytime they asked…well, they’d be out of business pretty soon.
No, real debt settlement, professional debt negotiating means mapping out a strategy. Taking a couple of hours to know your strengths and how to hit the creditors’ weaknesses. Think of it this way. If you spend three hours on this and get even 60% of ten grand in debt wiped out, you just made $2,000 an hour.
That’s like Bill Gates money! Makin’ it rain there with Branson.
First here is just to understand why you are in so far over your head. Was it a one-time emergency expense or maybe a habit of overspending? Even wiping out your debt isn’t going to help if you just get back into debt.
Run through the unbudgeting system that we talked about in the second video of the series. This is going to make it easy to track where your money is going then you can use some of the saving money tricks in the third video to see how much money you really have each month.
This is going to be important because it will tell you how much of your debt you can pay off and how much you’re going to need to settle.
You might want to get the help of a credit counselor. This is usually a free service of a non-profit group associated with the state government but steer clear of anyone that wants to settle your debt for you. You’re going to do that yourself and save a few thousand.
Finding Debt You Can Negotiate
Now you go through your credit report and bills to get all the information you can about your debts.
This is going to include; the name and address of each creditor, whether it’s been sold to a collection agency or still with the original lender, amount owed, payment history and any fees being charged.
That point about who holds the loan is an important one. Lenders will usually sell their bad loans to a collection agency after 3 to 6 months of missed payments. They might get only $0.10 on the dollar so offering more is going to be important in our negotiating strategy.
They might also just hire the collection agency to harass you for a fee. So it’s important to know who you need to talk to when you start negotiating.
Putting together a Debt Negotiation Strategy
Now you’re ready to plan your negotiation strategy. You’re a debt general standing above this map of all your debts and planning where to attack, where your creditors are weakest.
Part of debt negotiation is knowing when to start negotiating. Negotiating with original lenders is usually best started when you’re around 90-days late. That’s a month or two before they look to sell your debt to a collections agency so a lot of times, they’ll be willing to take that $0.30 on the dollar rather than only ten cents from an agency.
If you have debts already with a collection agency, you need to understand the statute of limitations on debt in your state. That’s the amount of time, usually between three to six years varying by state, that a collector can legally collect on a debt.
We see here in a map from the site WalletHub.com the statute of limitations on credit card debt for each state. So if you live in states like Mississippi, New Hampshire or the District of Colombia, you’re in luck because companies can only collect on that debt for three years. If you’re in Illinois or Iowa like myself, you’re SOL because it’s up to ten years.
Now this time limit starts after the last payment you’ve made, not when you got the loan. If you make a new payment, even a partial payment, then that starts the clock over.
So if you haven’t paid on a debt for three years and the limit on collections is four years, the agency trying to collect on that debt is going to be extremely willing to negotiate. I’m not saying you always want to wait for years, not paying that debt, just to give yourself bargaining power but it is an option.
Of course, you’re probably thinking, if you wait for years not making payments, why not just let that time limit lapse and not pay the debt at all? Why even bother negotiating?
Well, because that defaulted loan is going to hang on your credit report and kill your score for five to ten years. In a minute, I’ll show you a way to get the bad mark, those years you didn’t pay, taken off your report and boost your FICO fast.
You also want to strategize whether you’re going to offer lump-sum payments for your debt or a payment plan. You can get bigger discounts, like paying just 30% of what you owe, if you agree to send a check for that amount all at once. Offering to start a payment plan and you might have to pay more, like 50% or 60% of what you owe.
That’s what I did in 2009 when I renegotiated my debt. I offered to cut them a check for 35% of what I owed. Well, actually I started at 20% and then negotiated from there but we’ll get to that next.
How to Start Negotiating with Creditors
Once you’ve got all this laid out, you’re ready to start making some phone calls and negotiating your debt.
Please, please, please do not skip those prior steps. If you just skip everything and call your creditors, asking them to take less than you owe, it isn’t going to work. They will know when you haven’t prepared because you won’t know any of the info we’ve talked about and you won’t be ready for any of their questions.
The best negotiating strategy is what I call the let’s be friends strategy. This is where you present yourself like you want to be fair, you want everyone to come out with something.
You start the conversation explaining your situation, how an emergency forced you into this and you’re just trying to make it right. You explain that bankruptcy may be the alternative if you can’t work something out and may be unavoidable but you’re trying to pay what you can first.
This sets your creditors up with a sense of urgency. They’re thinking that they better get as much as they can quickly before you file bankruptcy.
Of course, there are other negotiating strategies. A popular one is the hard-line threat where you go in arguing the debt wasn’t fair, maybe that you didn’t understand the terms or that you were manipulated by the lender. You then put on the table as many demands as possible and then start negotiating back from there.
This is a favorite tactic of one famous negotiator, sometimes it works and sometimes it flops. It’s tough making it work unless you are in a position of power or have some kind of legal claim on your side but it’s another strategy to consider.
Speaking of demands, besides your overall strategy, you want to have several small items for which you can negotiate. Just calling in asking that a lender take less money is going to get a very quick one-word answer.
A few of the things you can ask for besides a discount in what you owe include; asking all fees to be waived, asking for bad marks to be removed from your credit report including that the debt was sent to collections, asking that the account be closed and marked as satisfied or paid as agreed on your credit report.
This is all about having different things you can give and take in the negotiation. If they say they will not write the credit bureaus to have those missed payments removed from your report, that’s fine, you come back with a lower offer on the debt. Maybe if they agree to all these items, you agree to pay a higher amount.
One thing you absolutely must remember in all of this is to get everything in writing. Use an app on your phone to record the conversation and get all agreements in writing before you make any payments.
These collection agencies will screw you over if you let them! DO NOT make a single payment EVER until you get that signed agreement in the mail or email.
It’s a long process negotiating debt but please do not skip over it. Not only will this four-step process help you save money but you'll finally be able to get out of that debt, that stress that's keeping you down and you can finally focus on what's important. We're going to be covering a lot more in our debt payoff series so make sure you scroll back up and subscribe to the YouTube channel to join the community.
Negotiating debt is a much harder thing to do than negotiating a salary. If your employer makes you an offer, it's generally in their best interest to make sure that offer remains as attractive as possible. It's a negotiation.
But when you're trying to reduce debt, you may be the only party who wants to negotiate. If you ask for concessions from your creditors, they may agree, but then again, they may not. It's a risk you take when you decide to negotiate, and the outcome depends on your circumstances.
Following the best practices in debt negotiation can help you get the best deal possible. It helps to have a good credit score, for example, and some disposable income to use as an interest-free loan . Without those things, you may leave money on the table. But if you know how to negotiate effectively and can make a good case for your financial situation, debt negotiation might be right for you.
Read the Entire Debt Consolidation Series
- Your Complete Debt Consolidation Process
- Payoff Review for Debt Consolidation Loans [No Hidden Fees]
- Should You Use Debt Consolidation to Pay off Debt?
- 15 Surprisingly Easy Loan Tricks to Ditch Debt Fast
- How to Pay Off Debt Fast During a Crisis