Are you struggling under the weight of trying to meet your credit payment obligations each month? You may be paying only the minimum balances and not even coming close to touching the principal. Many people in this situation feel stuck and unable to get out from under their credit debt load.
Credit balance negotiation might be one way for you to save money and permanently resolve your credit issues. You must be willing to take control of and add structure to your current financial situation. It’s not a bad idea to look for free credit counseling in your area to assist you in this area.
We’ve come up with some general guidelines to follow if you’re interested in pursuing a credit balance negotiation path. It’s not going to be easy, but neither is continuing to live under the weight of excess debt.
Look At Your Finances
Request a copy of your credit report and your bank statements from the past few months. How much have you been bringing in each month in income? What are you paying each month for bills outside of your credit payments? Be honest about what’s necessary and what you can eliminate. Make sure you put necessary expenses like rent payments or essential food items as your priority.
Make sure to leave a little wiggle room in any budget you work out for yourself. That keeps you from ending up in a bind when you run into an unexpected financial obligation. Do the best you can to account for things like a modest birthday present for a friend or getting a haircut for a relative’s wedding.
Face Your Expenses
Request a copy of your credit report from a reputable credit agency. Don’t fall for scams promising you free credit reports where you end up being forced to sign up for a program you don’t need. Look over all items on your report and organize them according to how much you owe. Note the items which have gone the longest without payment.
You can also request a breakdown of your current charges from your creditors. Make sure they’ve credited all the payments you’ve made to date.
Figure Out A Reasonable Payment Plan
What type of plan can you reasonably follow? Most credit balance negotiations end up with you agreeing to one of the following arrangements:
- Lump Sum Payment — If you have money saved in your bank account or access to funds by other methods, you can offer creditors a single payment lower than the amount of your current credit balance. You can end up saving in the long term by no longer having to carry the burden of keeping up with the interest rates applied to each of your payments.
- Payment Arrangement — Instead of giving your creditor a single payment, you agree to make payments over a period to pay off the negotiated balance. The time range can vary depending on the agreement reached between you and your creditor.
- Forbearance — Sometimes a temporary financial setback causes you to have issues making credit payments. The reason could be a medical illness, the loss of your job, or some other life-altering situation. Your creditor agrees to either lower your monthly payments, stop charging you interest or fees or freeze your payments altogether for a period. You don’t receive forgiveness for the debt itself, but you do buy yourself some time to get into a better situation without being forced to meet the full amount of your monthly payments.
Consider Getting Outside Help
If you’re truly overwhelmed by the amount of debt you owe, you can look for the services of a credit counselor from a non-profit agency. They can offer you advice on the best path forward and won’t charge you fees for their services. You can contact the National Foundation for Credit Counseling for a reputable credit counseling service.
Debt settlement companies offer to negotiate on your behalf for a contingency fee. They usually require you to make payments each month to build up a settlement balance. Once it reaches a certain amount, they reach out to your creditors and offer to settle your credit balance. Be aware that the fees they charge could reduce the amount of money you could potentially save by having them negotiate on your behalf.
Hiring an attorney to handle any credit balance negotiations is another path forward. Since most attorneys require a retainer and charge by the hour, you’ll have to weigh the benefits versus the amount they can successfully negotiate as a settlement. Attorneys can give you solid advice on what payment strategy will save you the most money and put you on a stronger financial footing once the balance is paid off.
Contact Your Creditors
Either you or your representative needs to make direct contact with the creditor. Many are more willing to negotiate when engaged directly. You shouldn’t settle for the first offer they make. Be ready to haggle over the amount of any settlement. Remember, the more you’re willing to engage, the better off your final negotiated offer could be in the end.
Get any agreement you or your representative make with a creditor in writing. That protects you in case something goes wrong, and they fail to update your repayment status properly. You can have proof of the agreement if the credit item isn’t removed from your credit report once you’ve paid the agreed-upon amount.
Be very honest about what you’re capable of paying. You don’t want to default on any agreement, which could end up making your financial situation worse. The creditor will likely add on late fees or even pursue a lawsuit against you. If they win, they could be in a position to garnish your wages, putting you in a deeper financial hole.
What You Gain
Working out a credit balance negotiation with your creditors can provide you with substantial long-term savings. Most creditors would prefer to settle for what you’re capable of paying rather than risk getting nothing in return. Avoid the temptation to dodge their phone calls. Confront the problem head-on and start getting your financial house in order.
A successful credit balance negotiation allows you to eventually work your way out from under your debt load. You can start working toward rebuilding your credit once you’ve fulfilled all your payment obligations under the terms of any settlement reached.
Don’t Give Up
What you don’t want to do is passively allow things to accelerate. Ignoring the problem won’t make it go away. You could be missing out on the chance to keep things from getting worse. Going through with a credit balance negation can be educational and help you learn how to keep yourself in a more favorable financial position as you move forward in life.
Susan McCullah is an established writer who has created dozens of informative articles about credit scoring, identity theft, budgeting, taxes, debt, and finance. She has worked in the Credit Reporting industry for 15+ years and is FCRA certified. Susan regularly conducts in-person presentations and webinars on the topics of credit scoring formulation, raising credit scores, and identity theft.
