One of the worst feelings in the world is the dread felt when the phone rings and on the other end is a person demanding money that you don’t have. It’s money that you should pay; you borrowed it, but there’s no money in your account to cover it. Learning how to negotiate your delinquent debt is essential to moving past that dread and forward in your financial life.
According to Urban Institute, in 2014 there were 77 million Americans who knew that feeling. 77 million people who had struggled to pay a debt they accrued but struggled to pay back due to hardships in their lives. Dealing with creditors can be emotionally and financially taxing, these 7 tips can help with paying off your debt and repairing your credit.
Banks will work with you directly for the first 120 days that your account is delinquent. They can help you with creating a payment program that will get you back on track. This may involve freezing your interest rate or stopping additional late and delinquent fees from being accrued.
After 120 days, however, the debt will move to an in-house collections department. You still have the opportunity to work with the agency you borrowed from, but your options might change.
After about 6 months, the bank will usually sell the debt to a collection agency. They sell the debt for a fraction of the amount it was originally. A $10,000 debt may be sold for $1,000. The collection agency, however, is going to attempt to collect the entire cost of the debt, in the hopes of making money.
When the debt first goes delinquent, the attempts to collect the debt will be by mail. Make sure you are opening all correspondence, there could be offers to join payment programs that will help you.
When the banks or collection companies call, answer the phone. You don’t have to answer every phone call but it’s important that you stay in contact with them. Explain your story, be clear & concise as to why you cannot pay.
While you are answering those phone calls, do your best to remain unemotional. Avoid getting angry at what they are saying on the other line. Often times, they are hoping your anger will cause you to agree to their offer so you can get off the phone quickly.
One suggestion is to have a script written ahead of time and use it to guide what you are going to say. Explain what you are dealing with, what you can afford (based on the budget you have already created), and keep it to the facts. There’s no crying in baseball and there’s no emotion with debt collectors!
As you are speaking to the collection agency, request that they send you their offer in writing before you agree to anything. This protects you should something different happen in the future. And if you are counter-offering, send it via certified mail as well.
Before you agree to anything with a debt collector, know your budget! Determine exactly what you can afford in repayments. Do you have $1,000 saved up to pay the balance in full? Offer $750 first to see if they will accept it.
Can you pay $50 a month for 6 months? Offer that but nothing more. Paying more than you can afford will not get you out of the financial situation you are in. Make sure you are doing everything you can to avoid further debt, delinquency, and stress by knowing your budget.
Whether you are offering a lump sum to absolve yourself of the debt or offering a monthly payment, start small with your offer. Collection agencies buy your debts for a small percentage of what you initially borrowed and what you now owe. Offer the company 25% of that balance first.
The company may counter with 80%, do not accept that amount. They are still doubling their money. If you have enough to counter again, offer 40% of the balance. If that is not accepted, agree to make small (very small) monthly payments while you save up for another lump sum offer.
Before you fulfill your obligations and the debt is satisfied, request that the collection agency clears up the negative marks on your credit report. Negative reporting can stay on there for 7 years, get them removed now while you can. (Don’t forget to get this in writing!)
Dealing with past due debt is one of the hardest steps to improving your financial situation. No one wants to talk about why they are delinquent. No one wants to admit that things have gotten bad. However, negotiating that debt is necessary for moving forward, hopefully, these seven steps will help you do so quickly.