What’s this key fact?
Lenders don’t want to negotiate. Let me say this again. Lenders don’t want to negotiate.
Why should they? They lent you money in good faith, and they expect to be paid back. In full.
The good news
The good news is that most debts can be negotiated. Credit card debts can be negotiated. So, can medical debts, personal lines of credit, and just about any other type of unsecured debt.
Secured debts like mortgages and auto loans can rarely be negotiated. This is a case where the lender definitely has the upper hand. If you default on an auto loan, one of those flatbed tow trucks could show up at 2 AM and take away your car.
Stop paying on your mortgage, and your house could go into foreclosure, which is a way of saying you’d lose it.
How to get a lender to negotiate
So, if lenders don’t want to negotiate, what can you do to motivate them?
You need to be a bit of a salesperson, and sell them on the fact that you’re having a financial emergency.
Your emergency could be that you lost your job, or you had a major illness. It might be that you’ve had a divorce that left you with all of the debts, or you had a death in your family.
The point is that something drastic happened to you, which has made it impossible for you to repay your bills in full.
Lenders are skeptics
The people at banks and credit card companies tend to be skeptics. They’ve heard just about every hard luck story imaginable. Just telling them you’ve had a financial emergency won’t cut it. You’ll probably need to have documentation that proves your emergency.
Were you hit with a serious illness? You should have the bills available that prove how much it cost you. Have you lost your job? Then, you should have something like the letter about your termination or copies of unemployment checks. If your financial problems were caused by a divorce, you might have your divorce decree at hand.
Lead with the B word
Some experts say you can get to negotiating a debt a lot quicker by leading with the B word as in bankruptcy.
For example, you might say, “I’m in such a financial pickle that if you won’t negotiate with me, I’ll have to file for bankruptcy.”
The reason this is such a powerful weapon gets back to that thing about unsecured debts.
If you file for bankruptcy, your unsecured lenders will get nothing as in zip, zilch, nada. And they know this.
You’ve undoubtedly heard the old expression that half a loaf is better than none. Lenders understand this very well. If you give them a choice of negotiating or bankruptcy, most will choose to negotiate – to get that half a loaf.
What to ask for
When it comes to negotiating with a lender, your initial offer should be low. Very low. Once you name a number you can’t go lower. You can only go up.
Let’s say you owe $6000 on a credit card. Your first offer might be $2000. Is the lender likely to accept that?
Probably not. In fact, you might get a flat turn down. But what’s more likely is that you’ll get a counter offer for, say, $5000. You could counter the counter at $3000, and the lender might agree to that. If so, you’ve just saved $3000.
Before you start jumping for joy
There’s the old saying that there’s no such thing as a free lunch. While you might be able to cut a debt in half through negotiation, it will come at a price.
For one thing, you’ll need to have that $3000 (or whatever) available to immediately send the lender. If you can’t promise this, you’ll be out of luck. Very few, if any, lenders will let you pay off a debt for less than you owe if you can’t promise to make that immediate payment.
Second, debt negotiation, or debt settlement, will have a negative effect on your credit score.
– this is simple. You did not repay your debt(s) in full as you had promised.
How much will this damage your credit score?
It could drop it by 80 or more points.
Debt settlement will also make it more difficult for you to get credit in the future. Lenders are not dummies. When they see you failed to repay your debts in full, they’ll either flat turn down your application or pump your interest rates way up — to offset the fact that you’re now a risky borrower.
Using a debt settlement company
Debt negotiation is essentially the only way to get unsecured debts paid off for less than their balances. Just think. If you owe $18,000, some tough negotiating could get that whittled down to $9000.
However, this assumes that you’ve had a true financial emergency, and that you have the cash available to pay for your settlements. These are two of the biggest reasons when most people choose to use a debt settlement company and not try DIY debt settlement.
Lastly, but certainly not leastly, hiring a debt settlement company means they’ll do the negotiating for you. And because the good ones have done this over and over, it’s just about certain they’ll negotiate better settlements than you could yourself.