By Attorney Margaret Reiter
1. Adopt a plan and stick with it. If you owe $1,100 but can’t afford to pay more than $600, don’t agree to pay more. If you have decided to use your extra money to bring your car payments current, don’t let your credit card collector intimidate you into using that money to pay your credit card debt.
2. Try to identify the creditor’s bottom line. For example, if a bank offers to waive two months’ interest if you pay the principal due on your loan, perhaps the bank will actually waive three or four months of interest. If you need to, push it.
3. If your request is turned down, remember to escalate. The first person you reach probably does not have authority to make the changes you are seeking. Ask to speak to a supervisor, and if that person can’t help, ask to speak to that person’s supervisor. If you can’t reach anyone with authority by phone, write to the president or another high official in the company.
4. Don’t split the difference. If you offer a low amount to settle a debt and the creditor proposes that you split the difference between a higher demand and your offer, don’t agree to it. Treat the split-the-difference number as a new top and propose an amount between that and your original offer.
5. Don’t be intimidated by your creditors and collectors. If they think you can pay $100, they will insist that $100 is the lowest amount they can accept. Don’t believe them. It’s fine to hang up and call back a day later.
6. Be patient. Don’t be afraid to say no to a creditor’s proposal. Wait a few days, offer another proposal; say no again and again if necessary. Some of the best negotiations take weeks or months.
7. Try to settle with a lump sum. Many creditors will settle for less than the total debt if you pay in a lump sum, but will insist on 100% if you pay over time.
8. Try to get reduced interest or late payment fees eliminated. If you don’t have enough money saved to offer a lump sum, you may still be able to get the creditor to forgive penalties, such as late payment penalties, or to agree to lower the interest rate on continuing payments.
9. Don’t be intimidated by threats to report your delinquency to a credit reporting agency. Sometimes creditors or debt collectors will threaten to report you to a credit reporting agency. Don’t let that threat affect your negotiation plan. Most creditors use automated systems that report all their accounts at least once a month, or more often. This means that chances are, any delinquency on your account has already been reported automatically. Many debt collectors do not report to credit reporting agencies. Those that do have probably already reported your account with their automated regular reporting.
10. Get a signed release. If you settle for less than the full amount owed, make sure the creditor signs a release stating that your partial payment excuses you from the remaining balance.
11. If you want re-aging, or if you want a tradeline or negative information removed from your credit report, include that as part of the negotiation and settlement. If it’s not in the agreement, the creditor is unlikely to change information it reports to a credit reporting agency after you’ve settled.
12. Be careful not to give up more than you get. A creditor may waive interest, reduce your payments, or let you skip a payment and tack it on at the end. But tread cautiously. The creditor is likely to ask you to do something in exchange, such as getting a cosigner (who will be liable for the debt if you don’t pay, even if you erase the debt in bankruptcy), waiving the statute of limitations (the number of years the lender has to sue you if you stop making payments), paying higher interest, paying for a longer period, giving a security interest in your house or car, or waiving your right to sue for illegal conduct by the creditor in the initial transaction. If you’re asked to sign anything you don’t understand or have concerns about, don’t sign it. First, consult with a credit counselor or lawyer.
Excerpted from Credit Repair, by Margaret Reiter and Robin Leonard (Nolo).