Setting Goals When Negotiating With Creditors

One good way to deal with overdue or outstanding debts is to negotiate a deal with the creditor or debt collector. Before you start negotiating, figure out exactly what you want – these are your negotiation goals.

Here are some of the things you may want to negotiate for when dealing with outstanding debt.

1. Getting more favorable temporary payment terms. To deal with short term problems, you may want additional time to make back payments over time or at the end of the contract, lower payments, or no payments temporarily. You may want changes that will give you lower payments temporarily, such as a reduced interest rate, a lower minimum payment, or removal of late penalties or other fees.

2. Getting more favorable long-term payment terms. You may want changes that will give you lower payments over the long-term, such as a reduced interest rate or removal of late penalties or other fees.

3. Getting a discount on the total amount owed. Especially if you can make a lump-sum payment, you may be able to get a debt collector and even some creditors to agree to reduce the total amount of the debt.

4. Getting the creditor to take back secured property and give up its debt. If you have decided you cannot make the payments on a secured item, such as a car or household appliance, you might want to see if the creditor will take the security in return for eliminating your debt, even if you owe more than the secured item is worth.

5. Getting the creditor to re-age your account. If you are able to make regular payments on the debt, but have several outstanding past due payments, consider asking the creditor to re-age the account. If the creditor agrees, it will treat your regular payments as current, even though you have several outstanding payments. The creditor may also agree to eliminate the past due status for those payments. In connection with this, the creditor may agree to collect the late payments later, a little at a time, at the end of the contract, wipe them out entirely, or wipe out any late payment penalties.

The downside to re-aging an account is that if you later fail to keep your payments current, your debt can be reported to credit reporting agencies as delinquent based on the later missed payment date, rather than on the original missed payment date. This means the delinquent account is on your credit report longer—seven years from the later missed date, rather than the earlier one. 

6. Getting a creditor or debt collector to remove the entire account tradeline from your credit report. In exchange for a full or partial payment, or for your agreement not to pursue a claim against the collector for its legal violations, you may want a creditor or debt collector to remove the tradeline (that is, remove all information about an account from that creditor or debt collector) from your credit report. If you ask for the tradeline to be deleted, all information in the tradeline about the account will be removed. So, if you had several years of positive payment history before you defaulted on the account, that positive information will also be deleted.

7. Getting a creditor or debt collector to remove negative information about the tradeline from your credit report. In exchange for full or partial payment, or for your agreement not to pursue a claim against it for violation of its legal duties, you may want a creditor or debt collector to remove some or all negative information from the tradeline in your credit report or change it to a more favorable statement. For example, you may want a settlement for less than the full amount reported as having been paid in full, rather than as a partial payment in settlement.

Excerpted from Credit Repair, by Margaret Reiter and Robin Leonard (Nolo).

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