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NEGOTIATING WITH CREDITORS

The best time to negotiate with a creditor is when you first realize that you may have difficulty making your monthly payment. Contacting creditors early shows you are responsible and trying to your financial responsibilities. Even if you are already a payment or two late, creditors will usually respond to your call by trying to work with you rather than referring the debt to a collection agency.

When negotiating, research has shown that it is effective to remain calm. Getting agitated or angry can usually be counter-productive. If you politely explain your need for help and your willingness to work out an acceptable solution, most creditors will respond in kind. If you believe that you’re getting nowhere, courteously end the conversation and call back another day.

In the case of a credit card, you may be able to negotiate a lower interest rate, especially if you suggest that you will otherwise transfer the balance to another credit card. A creditor also may be willing to drop late fees, waive interest, temporarily reduce your payments or allow you to skip payments and make them up later.

If you have some money to work with, you can even make an offer to pay off the balance with a reduced lump sum payment – 50% of your debt is a good starting point for such negotiations. Some collection agents are authorized to accept less than 100% of the total amount due. Make such an offer contingent upon the creditor removing any unfavorable “past due” notations from your credit file, as the removal of these items will improve your credit score. (If your negotiations are successful, ask the lender to put the agreement in writing and send you a copy before you make your payment.)

Note: If you're able to settle a debt for less than its full amount, there may be additional tax issues. Creditors who forgive debts are required by the IRS to report the forgiven amount as income to the debtor.

When negotiating, never promise to pay an amount larger than you can afford, but pay as much as possible. At the very least, you can agree to make a token payment. This shows creditors that you intend to pay off the debt when you have funds and that the amount you owe is not a lost cause. When making payments, you should always use a check or money order so that you have a record. Save copies of all your correspondence with creditors because their call centers have turnover and you may be speaking with numerous employees to settle one issue.

If the creditor has already passed your debt along to a collection agency, it will be reflected on your credit report. If you have doubts about the balance owed or other issues with the creditor, tell the collection agent and see if he or she will agree to send it back to the creditor. If they do, make sure this gets reflected on your credit report and again, ensure you record correspondence with the collector.

If all else fails, it is possible to set up a payment plan with the collection agency.

Maybe the collection agency has already contacted you about the debt – several times in fact. Collection agents are famous for their determination and persistence. A collector may contact you in person by mail, telephone or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.

If an agent becomes belligerent or pesters you with phone calls, you have the right to ask the collection agency to discontinue calling you. Debt collectors may not harass, oppress or abuse you or any third party they contact. They are also prohibited from using any false or misleading statements when collecting a debt. For instance, they may not claim that you will be arrested if you do not pay your debt or use harassing language. They are not allowed to contact your relatives or people you know to collect the debt. In most cases, the collector may not tell anyone other than you and your attorney that you owe money.

If you have questions about your rights when dealing with a collection agency, you can review the Federal Trade Commission’s “Rules of the Fair Debt Collection Practices Act” at http://www.ftc.gov/bcp/online/pubs/credit/fdc.htm