Negotiating with Creditors: Tips for Lowering Your Debt

If you’re struggling with debt, you’re not alone.

In fact, according to a recent report by the Federal Reserve, more than 40% of Americans couldn’t cover a $400 emergency expense with cash, savings, or a credit card charge that they could quickly pay off.

If you’re facing a mountain of debt, it can feel overwhelming.

I know about this from first-hand experience because I struggled with debt for most of  my adult life.

There was a point where I thought I would never know what it felt like not to have debt. 

I envisioned my senior years working until I dropped dead on the job just to pay off my debts. 

Student loans, credit cars, car loans, personal loans. 

You name it, I had it. 

I felt like such a failure because I had buried myself under mountains of debt. 

I had no concept of managing money and even less about how to use debt responsibly.

But with a little education, and a lot of determination, I was able to turn that around.

And so can you.

One place to start is with your creditors.

With a little time, research, and effort, you can negotiate with your creditors to lower your debt.

I am going to share some things I learned along my journey that can definitely help on yours.

1. Know your rights

Before you start negotiating with your creditors, it’s important to know your rights.

The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects consumers from unfair or abusive debt collection practices.

The FDCPA prohibits debt collectors from using threatening or abusive language, making false or misleading statements, or engaging in other unfair practices.

I remember the times vividly when I received calls from creditors threatening me with all kinds of craziness.

Threatening to take me to court, threatening to send police to my home, threatening to garnish my wages.

And the absolutely out of order things some of them said to me.

I was a bad parent because I was behind on my car note.

I was broke and couldn’t afford x, y, z (I was broke, this part was true, but it wasn’t because I didn’t make decent money. I just didn’t know how to manage it.)

It was absolutely wild what some of these people did to try and force blood from a stone.

I was completely unaware that what they were doing was illegal.

So, I lived in fear and anxiety due to the constant harassment.

Until I learned my rights.

You don’t have to accept abuse or harassment simply because you owe debt.

Navigating the Do’s and Don’ts of Debt Collector Communications

When Can They Call? Let’s face it, nobody likes unexpected calls, especially from debt collectors.

But did you know there are rules about when they can actually call you?

It’s a no-go for them to disturb your peace before 8 a.m. or after 9 p.m.

And if they’re savvy enough to know that your boss frowns upon personal calls at work, they shouldn’t be dialing your number there either.

Caught in a bad time? Simply tell them it’s inconvenient, and they should promptly end the call – no ifs, ands, or buts!

Social Media and Electronic Messages: The New Frontier Think your social media is a safe haven from debt collectors?

Think again.

While they can’t air your financial laundry in public posts, they can slide into your DMs privately.

But here’s the kicker – if you’re not into chatting about debts on your social channels, just say the word, and they should back off.

And for those pesky emails or texts?

They must provide you an easy way to say, “No more, please!”

Harassment is a Big No-No Being hounded by debt collectors? That’s a major violation.

Whether it’s over the phone, via text, or email, harassment is off-limits.

Remember, you have the right to a harassment-free life, even when debts are involved.

Got a Lawyer? Direct Them There! If you’re playing it smart and have an attorney handling your debt matters, debt collectors should be talking to them, not you.

Make sure the collectors know who’s representing you.

It’s also a brilliant move to keep a record of all interactions with debt collectors – dates, times, and conversation details.

This isn’t just being meticulous; it’s being prepared, especially if legal action is on the horizon.

2. Understand your debt

Before you can negotiate with your creditors, you need to understand your debt.

Take some time to review your statements and make a list of all of your creditors, the balance owed, the interest rate, and the minimum payment.

One of the many ways I went wrong was to avoid knowing how much I really owed on my debts.

For a long time, I didn’t want to calculate the actual amounts I owed because I knew I didn’t have enough to pay it all.

But this approach did not serve me.

I realized that I had to face the Goliath that was my debt if i was ever going to know how to defeat it.

I’ll never forget the day I wrote down everything I owed and stared at that six-figure number in disbelief.

No one could convince me that I would ever find a way out from under that.

But, I was determined not to let it defeat me and I started doing research on ways that I could manage it.

That’s when I (re)discovered Dave Ramsey and found his YouTube channel.

I started binge watching all of the episodes and became more and more hopeful that I could right the ship.

I was encouraged by the people that did their “debt-free screams”, putting mountains of debt like mine behind them.

The power of knowing that others did it, some with even more debt than myself, was inspiring and fueled my motivation to forge ahead.

There is power in knowing that others have gone before you and have been successful.

And this is why I share my story, to pay it forward.

So don’t bury your head in the sand.

Face the numbers and make a plan to work away at it.

Others have been able to do it and so can you.

3. Determine what you can afford to pay

Once you know how much you owe, you need to figure out how much you can afford to pay.

Make a budget and list all of your income and expenses.

Then, see how much money you have left over each month to put towards your debt.

When I started my journey, I used the cash budgeting system.

I had been very irresponsible with using debit and credit cards.

I didn’t keep track of what I was spending and frequently incurred overdraft fees and negative balances on my debit cards.

In one year alone, I racked up $1000 in overdraft fees.

To say I was shocked (and disgusted) is an understatement.

Because I knew where my weaknesses were, I stopped deluding myself into believing that using these things was something I could handle responsibly.

I ditched using cards for anything and went back to the old school way of paying for everything in cash.

I can’t tell you how much this simple act saved me.

Sometimes, you just have to get real with yourself and accept where you may fall short.

Sometimes, you just don’t have the discipline to do certain things.

And that’s okay.

Everyone’s situation isn’t the same and your approach to things doesn’t have to look like someone else’s.

If you’re like me, and know that debit and credit cards are things you just can’t get a handle on, ditch ’em.

Going back to using cash can help you stay focused and real about what you have, and don’t have, money for.

More resources:

MY JOURNEY WITH CASH ENVELOPE BUDGETING: A PERSONAL GUIDE TO FINANCIAL FREEDOM

HOW MONEY ENVELOPE BUDGETING WORKS

4. Contact your creditors

Once you know how much you can afford to pay, you need to contact your creditors.

You can do this by phone, email, or letter.

When you contact your creditors, be sure to explain your financial situation and why you can’t pay the full amount owed.

Then, ask if they’re willing to negotiate a lower payment.

This really does work and I used it many times during those early years of tackling my debt.

I was able to negotiate lower rates which helped accelerate paying of my debt.

Let me break down how this works:

Credit cards typically come with interest rates, which is essentially the cost you pay for borrowing money.

This interest is calculated on your outstanding balance and added to what you owe.

So, the higher the interest rate, the more money you’ll end up paying on top of the actual amount you borrowed.

Now, imagine if you could reduce this interest rate.

Negotiating a lower rate means the extra amount you pay on your debt decreases.

This doesn’t just reduce the total amount you’ll pay over time; it also means that more of your payment goes towards reducing the principal amount (the actual debt) rather than just covering the interest.

With a lower interest rate, each payment you make is more effective.

Instead of chipping away slowly at the debt with a large portion of your payment swallowed by high interest, more of your money goes directly to reducing the debt itself.

This efficiency can significantly speed up the process of becoming debt-free!

5. Negotiate a lower payment

Reducing your interest rate can create a positive snowball effect.

As you pay down the principal faster, the total interest calculated on the remaining balance also reduces, making subsequent payments even more effective.

This cycle continues, accelerating your journey out of debt.

There’s also a psychological advantage.

Seeing your debt decrease more rapidly can be incredibly motivating.

It can transform a seemingly endless cycle of payments into a more manageable and encouraging financial journey.

Paying less in interest frees up funds that can be used to pay off other debts, save, or invest.

It’s not just about getting out of debt; it’s about moving towards a healthier financial future.

If your creditors are willing to negotiate, be sure to get the agreement in writing.

Once you have a written agreement, make sure you make your payments on time.

If you’re struggling to make your payments, don’t be afraid to reach out to your creditors and negotiate a new payment plan.

Negotiating lower credit card rates is like finding a faster route in a traffic jam.

It makes every dollar you pay more effective, speeds up your debt repayment, and sets you on a quicker path to financial freedom.

6. Seek help from a professional

If you’re struggling to negotiate with your creditors on your own, you may want to seek help from a professional.

A credit counseling service can help you negotiate with your creditors and create a budget.

When dealing with credit card counseling companies, it’s important to approach with caution and be well-informed.

I learned this lesson the hard way many years ago when I paid $250 for a “credit repair” service.

The company basically sent me 3 booklets in the mail on how to contact creditors and negotiate my debt myself.

They promised to eliminate the debt for me but sent me books to do it myself instead.

I gave those crooks $250 of my hard-earned money, which I didn’t have to just throw away as a young, single mom at the time.

I quickly realized that what they sent me could have easily been found at the local library for free.

Be very careful as there are bad actors out there who want nothing more than to take your money without providing you with anything of value in return.

Here are some key points you should be wary of:

1. Promises That Sound Too Good to Be True: If a credit counseling service promises to fix your credit score overnight or eliminate your debts magically, be skeptical.

Real credit repair and debt reduction take time and effort.

Instant solutions are often not realistic and can be a red flag for a scam.

2. High Upfront Fees: Be cautious of companies that demand high fees upfront before providing any services.

Legitimate credit counseling agencies typically offer free initial consultations and have reasonable fees for their services.

Exorbitant fees can be a sign of a predatory company.

3. Lack of Transparency: A reputable credit counseling agency should be transparent about the services they offer, their fee structure, and the expected outcomes.

If a company is vague about their processes or avoids answering your questions directly, give them the side-eye and the deuces.

4. Pressure Tactics: Be wary of counselors who pressure you into making quick decisions or signing up for their services without giving you time to consider your options.

High-pressure tactics are often used by less scrupulous companies to trap clients into unfavorable agreements.

5. Poor or No Accreditation: Check if the credit counseling agency is accredited by recognized organizations like the National Foundation for Credit Counseling (NFCC) or the Financial Counseling Association of America (FCAA).

Lack of accreditation can be a warning sign of a less reputable agency.

6. Negative Reviews or Complaints: Do some research on the company’s reputation.

Look for reviews, testimonials, and any complaints filed against them.

A history of negative reviews or numerous complaints with consumer protection agencies can indicate problematic business practices.

7. Unrealistic Debt Management Plans: Be cautious of counselors who propose debt management plans that don’t seem feasible based on your financial situation.

A plan that doesn’t realistically fit your budget can leave you worse off than before.

8. Impact on Credit Score: Understand how the company’s actions might affect your credit score.

Some strategies used by credit counseling agencies, like debt settlement, can negatively impact your credit score.

9. Confidentiality Concerns: Ensure that the agency respects and protects your personal and financial information.

Confidentiality is crucial in financial counseling, and a breach of this can lead to serious problems.

10. Lack of Comprehensive Financial Counseling: A good credit counseling agency should not only help you manage your debts but also provide guidance on budgeting, financial planning, and how to avoid future debt problems.

If the service is solely focused on debt without addressing the broader financial picture, it might not be in your best interest.

While credit counseling can be a valuable service for those struggling with debt, it’s important to approach it with a critical eye and do thorough research to avoid falling prey to unscrupulous companies.

7. Consider bankruptcy

If you’re unable to negotiate a lower payment with your creditors, you may want to consider bankruptcy.

This is a last resort option and should only be considered if you’re unable to repay your debts at all.

If you’re struggling with debt, don’t despair.

There are options available to help you get back on track.

With a little time and effort, you can negotiate with your creditors to lower your debt.