As a federally licensed Consumer Proposal Administrator I have a good understanding of what terms creditors are looking for and how to make a deal that works for both you and your creditors.
It is possible for you to negotiate directly with your creditors to:
- arrange better debt repayment terms (a longer time to pay or a deferral for a short period);
- ask for a reduced interest rate; and
- perhaps even negotiate a partial debt settlement.
Negotiating with creditors works best if you are current on your payments and if your financial problems are temporary. If your debts are excessive or your budget is so out of control your debts are growing, your creditors will probably not be willing to discuss any form of arrangement other than through a formal debt relief program like a consumer proposal.
You should also be prepared for your creditor to limit your access to further credit if you choose to change the terms of your current loan with them. If you are talking about a credit card debt, your provider will probably ask you to stop using your card and may even revoke your card all together. Understand this is not an unreasonable request on their part and be prepared to give in if needed to gain the payment terms you are looking for.
If you are going to make a deal with your creditors on your own, following this step by step approach will increase your chances of success.
1. Determine What You Can Afford
Do not attempt to negotiate with your creditors until you have made a plan, or else you are likely to commit to paying more than you can afford. When your credit card company calls you up and demands payment in full within 24 hours, you have to know in advance what you can afford to offer.
Begin by making a list of each debt you are looking to talk to your creditors about. For each debt, write down:
- how much you owe;
- what the interest rate is;
- what your current monthly payment is;
- whether you are in arrears or current.
Next look at your budget (or make one if you haven’t already) so that you can determine what you can afford to pay each month. Allocate how much you can realistically pay against each debt you owe. The goal of your negotiation plan is to know how much you can afford to offer each creditor each month.
2. Determine Your Offer
You may decide, based on your budget, that you can afford to give Visa $200 per month. If that’s what you offer, they will probably ask for $400. So, start low, and work your way up. If you can afford $200, offer $100, or $150, so that when they counter with $300, you can “split the difference” and agree on $200 per month, which is what you were willing to offer in the first place.
3. Determine Your Terms
You may be able to afford $200 per month, but can you “sweeten the pot” by offering $100 every two weeks, to match your paycheques? That probably still fits within your budget, but it actually gets the creditor slightly more than $200 per month because you pay extra in three paycheque months.
Also, if you can offer a lump sum of cash up front you have a greater chance of getting your offer accepted, so if you have cash to offer, do it.
You can also ask to sweeten the pot for yourself. You can ask for payment terms, but you can also ask for other concessions, like a reduced interest rate. Perhaps you offer to bring your account up to date within the next month, and in return they will give you a reduced interest rate. If you don’t ask, you won’t get what you want.
4. Be Prepared With An Alternative
Creditors won’t give you a rate reduction or term extension just because you asked. They will be willing to negotiate if they think they have no other option. You will need to prove to them that you can’t afford to pay more. Explain your financial situation but be truthful. They will want to know why you can’t pay more than you are offering.
Explore your other options like a debt management plan (which will mean your creditors accept no interest) or a consumer proposal (which may mean they write of part of their debt). Be prepared to tell them you may need to do one or the other if they cannot provide you will some concessions to repay your debt. Make sure your alternative is realistic however. If they don’t think you qualify for something like bankruptcy for example, they won’t believe you and your negotiations will quickly come to an end.
Now that you have a plan, and know what you can offer, rehearse what you will say before you pick up the phone. Explain why you need a break, and explain what you can offer. For example, you may say:
“I am laid off work now, but from my E.I. I can afford to send you $200 per month until I’m back to work.” That explains why you want a deal, and what you are willing to pay.
It is likely that they will ask for more money, or ask you to go to family or friends to get more money, so rehearse how you will handle those objections. Write it down on a piece of paper and leave it by the phone to remind you of your strategy.
When talking to your creditors, avoid drama and stick to the facts. While they want to determine how serious your situation is to decide what to agree to, they don’t want to hear a long and winding story. Stick to the basics and make sure you always tell the truth. They may follow up to be sure your story is consistent.
5. Get It In Writing
If your creditor agrees with your plan, great! Ask them to send you a quick e-mail, or letter, confirming the terms of your agreement. You may be dealing with a group of collectors, and you don’t want to make a deal with one collector today, only to have a different collector call you again next week trying to make a different deal. Get it in writing so there is no confusion. Better yet, if you are negotiating about an account in collections, talk directly to the original creditor rather than the collection agency. Be prepared however for your creditors to say all deals have to go through collections or that they have sold your debt and you now owe someone else.
Most of all be persistent when negotiating with your creditors. Adjust your offer, ask them to adjust theirs until you come to an agreement. Just make sure whatever terms you negotiate you can afford them and you commit to keeping them.