If you can't afford to pay your debt in full, the first thing you should do is write a debt negotiation letter.Negotiating debt is helpful if you want to save your credit score, but can't afford to pay everything.Consider the following steps if you want to get the attention of your creditor.
Step 1: You should confirm your debt obligation.
Late fees, taxes, interest rates, and any other fees that may have been added since the original bill are included.In the event of default, it should include the terms of repayment and procedures.You should contact the creditor before writing the letter.
Step 2: Determine your financial situation.
You can create a budget based on income and expenses.If you know how much you can afford to pay in settlement payments to your creditor, you'll be able to prove that your settlement is all you have left.If the creditor wants to know your financial details, make sure to collect documentation.20 percent is a good percentage of net monthly income.You can save 10 percent and put the remaining 70 percent towards living expenses.The 20 percent should be used for debt payments.If you have other debts in addition to the one you are negotiating, you will have to factor in that monthly cost before determining how much you can pay each month.If you make $3,000 a month, you can put 20 percent of that towards debt repayment each month.If your only debt is your car payment of $200 per month, this leaves you $400 to pay off your debt each month.
Step 3: Decide what type of settlement you want.
If you accept the settlement offer, you will be able to modify your payment terms.There are a number of ways this can be done.Ask for a solution that works for you.You can ask for a balance reduction, a lower monthly payment, or temporary relief from payments.You should be able to afford the settlement you ask for.If you've lost your job but are still looking for a new one, a respite from payments may be useful.When your income returns, you can continue to repay your loan.Someone with more serious, long term income reduction or high ongoing expenses may be forced to ask for a balance reduction.You can reduce your payments to a manageable level.
Step 4: Debt talks should be prioritized.
If you're considering your finances, focus on your most important debts first.This depends on whether or not your debts are secured.You want to focus on the debts that are most painful, such as losing a home or an automobile.Paying off these debts would be more difficult than paying off your credit card debt.
Step 5: Determine how much to give.
If you can give your income and expenses, you should offer to pay more.If you can't afford it, your creditor will expect you to repay between 40 and 60 percent of your debt amount.Your creditor may reject your settlement offer if you start at the lower bound.This is dependent on the type of debt settlement you are asking for.If you are asking for a balance reduction due to medical difficulties or another long-term reduction in your ability to pay, your lender may realize that they will have to accept what you offer or risk getting nothing.You may be required to make higher payments once you regain your income if you ask for a payment break due to a temporary reduction in income.The missed payments would be made up with these payments.If you want to repay the majority of your debt while paying a lower monthly payment, you can ask for an increase in repayment duration.You can negotiate a lower interest rate.Without changing your principal, this would reduce the amount paid.
Step 6: The collections agencies should be handled differently.
Debt that has been sold to a collections agency should be treated differently than debt still owned by original lenders.The debt has been sold for a small amount and the collections agency hopes to get more than they paid.As a percentage of the original debt amount, this opens them up for a very small settlement.For old debts, a collections agency might accept less than 10 percent of the original value.Know your rights as a creditor.To limit communications to letters, notify the creditor.You don't need to be harassed during this phase.Under your state's statute of limitations, make sure the debt is still collectible.If you no longer have a legal requirement to pay, a collector may seek repayment.Check the statute of limitations for your state and type of debt by visiting http://www.bankrate.com/finance/credit-cards/state-statute-of-limitations-for-old-debts-1.aspx and locating the relevant number of years in the chartYou should consider working with an attorney.An attorney is proof that you are knowledgeable of your rights, prepared to make collection difficult, and capable of filing bankruptcy as a last resort.
Step 7: The letter should be opened appropriately.
The letter should be addressed to Sir or Madam.If you know the person's name, you can use it.On the left side of your letter, put the name of the lender, their address, and "RE:" followed by your account number.
Step 8: Please include your account information.
In your first sentence, state your account number and name.You should state the amount that the creditor claims you owe and the monthly payment they are asking for.
Step 9: Tell me why you can't make the payments.
Give a brief description of the situation that is preventing you from making your payments.Many borrowers have unexpected health-related expenses and experience job loss, so they are used to hearing these reasons.Don't write a sob story to get your creditor to feel bad for you.It's better to explain the situation in objective terms.A description of your financial situation should include your monthly income, living expenses, and debt payments.Make it clear that you only have one other option, and that is to file for bankruptcy.Proof of your situation can be attached to the letter.Proof of unemployment or a doctor's note can be included.
Step 10: Tell us about your proposal.
The reason for writing the letter is that you owe money and need a compromise.You should be clear about what you want.Do you want a reduction in the amount of the loan, a longer repayment period, or a reduced interest rate?Make your offer terms clear.Making your monthly repayment amount as much as you can afford will ground them in actual numbers.If you make an offer of payment to the creditor, be sure it's realistic.Defaulting on an agreed upon repayment plan can limit future opportunities.
Step 11: If you want to protect your credit, ask the creditor.
If you want your credit report to not be damaged when you negotiate your debt, request that the amount you propose be considered payment in full.If you ask the credit reporting agencies to not report your debt as paid or settled, it may work out.You should make it clear that you want the debt removed from your credit report.Your credit score will be protected by this.
Step 12: You can specify the form of payment that you will make.
If there is a date when the payment will be received by the creditor, the contract will remain valid.Your creditor will likely accept your settlement if you have cash on hand.
Step 13: The letter should be written using a professional tone.
Don't give too much information about your life to the creditor.Under a page, keep your letter short and to the point.Do not lie, plead, or beg with your creditor.They will only respond to your offer of repayment.
Step 14: Correctly end your letter.
Put your name under the letter "sincerely" and close it.Put your phone number and address under your name.
Step 15: You should check over your letter before sending it.
The debt negotiation letter should be inspected by a lawyer or credit counselor to make sure the language is professional and the point is clear.The letter is considered a legal document, so make sure you don't make any statements that can be used against your interests in court.).
Step 16: Wait for a response and send the letter.
If you want to keep a record of your creditor's receipt of the letter, send it through certified mail.Copies of your letter, any future letters, and any responses you receive should be kept in your records.If you end up in court with your creditor, they will be useful.
Step 17: Negotiating with the lender.
The offer should be increased until the creditor agrees to the sum proposed in the debt negotiation letter.Accepting some payment for you is in their best interest if you can't afford anything else.They know that if you file for bankruptcy, you won't be repaid, so getting something from you is better.If you file for bankruptcy, you may lose the pledged assets if the loan is secured.There is a chance that co-signers will be called for payment.Write down everything that is said when you're on the phone.When you talked to them, write down settlement amounts and repayment details.Before revising an offer, always receive a counteroffer.Get a recording device for collection calls and let callers know you are recording.This is useful when dealing with collection agencies.
Step 18: A written agreement is needed.
You will need a written agreement from your lender to make the agreement legally binding.The agreement should clearly state that the settlement will result in the forgiveness of the original amount and that it must be paid in full.Make sure that your lender creates and signs this document, rather than just signing a copy of your letter and sending it back.
Step 19: Comply with the terms.
Obey your part of the contract by paying the amount that was agreed upon by the specified date.Once you have paid, you should request a receipt from the creditor.If another creditor appears with the same debt, the settlement agreement should be kept for seven years.
Step 20: It's a good idea to check your credit report about 3 months after you negotiate your debt.
It should be referred to as paid in full on your report so that it doesn't affect your credit score.Send a request to the credit bureaus to correct the report if it doesn't show up as being paid, and include a copy of your debt negotiation letter and receipt.