Are you seriously in debt to the point where you’re almost ready to give up and file for bankruptcy?

Well, don’t.

You have options that would be much better and one of them is to negotiate with your creditors.

Yes, you can actually negotiate with your creditors to get your interest rates reduced, to get your payments reduced or waived or even to settle them.

But it’s important to know how to negotiate over specific types of debts. For example, you can’t negotiate an auto loan same way you could negotiate a credit card debt.

If you’re having a problem making your car payments

An auto loan is a secured debt meaning that your car is the collateral that secures it. If you’re having a problem making your auto loan payments your best option might be to just sell the car, use the money to pay off your lender and then buy an older but reliable used car.

Have you missed just one payment? Then the good news is that you do have a couple of options. First, you should immediately call your lender and ask to speak with someone in its customer service or collections department. You must do this very quickly because if you miss just one payment your lender isn’t required to get a judgment to repossess the car. It can just send a tow truck to take it away.

When you talk with your lender the first thing you could ask for is an extension. If your lender grants one you would then make that delinquent payment at the end of the loan. The lender will charge you a fee for the extension which could be $25 or possibly 1% of your outstanding balance.

Second, you might be able to get your lender to change the date your monthly payment is due closer to when it is you get paid.

Finally, it’s possible that your lender will agree to rewrite the loan so that you will have lower monthly payments. However, there is a downside to this, which is that it will take you longer to repay the loan.

If you’re having a problem with your auto lease payments

If this is the case, then the first thing you need to do is review your lease agreement. The federal Consumer Leasing Act requires that your lease disclose a lot of information including the conditions under which it can be terminated early and the fee for early termination or at least a description of how the fee will be calculated.

Canceling an auto lease is possible – if that’s your goal –  but what happens if you default and how you could terminate the lease early – should be spelled out in your contract. The odds are that the early termination fee will be pretty hefty. But you might be able to get the leaseholder to reduce it.

if you’re having trouble making your mortgage payments

About the only way to get a mortgage payment reduced is to get your mortgage modified.  This will mean providing your lender with documentation such as your recent mortgage statement, legal forms of identification, your W-2 and your property tax statement.  You will also need to submit a list of all of your debts with the amounts you owe and your monthly payments. You will also be required to submit a hardship statement stating why it is you can’t afford to make your current monthly payment.

If you are able to get a modification you will have a lower monthly payment but the odds are this will extend the term of your loan so that it will take you more years to pay it off

If your problem is credit card debts

Credit card debts are unsecured debts so in most cases are the easiest to negotiate. In fact, it’s possible to negotiate with credit card companies to settle your debts for less than their balances.

However, you will have to offer a lump sum payment to settle any credit card debt. This means you’ll need to accumulate cash before contacting a credit card issuer.  This could mean taking a part-time job, selling your valuable collection of baseball trading cards or hitting up a relative for the money. But it’s critical to have the money ready because that’s basically the reason why the credit card company will agree to settle – so it can get the money now – rather than gambling on future payments that may never come.

If you’re having a problem making loan payments

If this is your problem, you should be able to negotiate with your lender to refinance your loan. Interest rates today are at almost an all-time low so if you have a loan at 12% or higher you might be able to refinance it into one with an interest rate as low as 4.74% APR, which would mean much lower monthly payments. The downside to this is that it would extend the term of the loan so it would take you longer to pay it off.

There are several different forms of debt negotiation. However, the most popular by far is debt settlement. This is where you negotiate with your lenders to pay off your debts for less than you owe. It really blossomed in popularity as a result of the Great Recession of 2007 and has continued to grow as more and more people discover that it’s the only way to save money while still paying off their debts. No one apparently knows for certain how many people are choosing debt settlement but according to the settlement companies themselves it’s in the hundreds of thousands. You might find the idea of settling your debts for less than their balances to an attractive one but there are things you need to understand before you rush off and begin negotiations with your lenders and here are seven of them.

Be like a Boy Scout

Before you start making any phone calls you need to Be Prepared. This means making a list of all of your debts including the name of the creditor, the minimum monthly payment required, the interest rate on the debt and its outstanding balance. It’s also important to know which of your debts are secured (think mortgage and auto loan) and which are unsecured. Examples of these include credit cards, personal lines of credit, personal loans and payday loans. You’ll then want to concentrate first on certain debts. This is because not all debts are created equal. Some just can’t be negotiated. It’s almost impossible to negotiate your mortgage, an automobile loan, child or family support and past-due taxes. The ones that you should put on the top of your list for debt negotiation would be most of your unsecured debts especially credit card debts and any loans.

Master the basics of negotiating

Savvy negotiators know there are some basic rules that when followed will increase their chances of success. Take a cue from them by keeping these things in mind when you are negotiating with your creditors:

Always hold a little back

Another way to say this is don’t put all your cards on the table. If you’re talking with the creditor and telling things like how much you can afford to pay on a debt each month, the number of months you would like to make interest-only payments and so on, always hold something back. If you don’t let that creditor know immediately your bottom line offer, you’ll have some room to negotiate. If you’re really lucky, your lender will accept your initial offer regardless of what it might be. But if the creditor gives you a counteroffer – for example, the creditor might want you to pay a bit more each month than you had suggested or could offer to lower your interest rate by two percentage points when you had asked for a four-point reduction – you have room to come back with another offer or accept the creditor’s offer, which would at the minimum leave you better off financially than you are now.

Have a bottom line

No going in the minimum of what is you want to get out of your negotiations or the most you can afford to give the creditor. Never make the mistake of agreeing to more than your bottom line. If the lender demands more than whatever your bottom line number is, you’ll just have to stop negotiating and maybe try again in a month or so later.

Understand that to get a little you have to give a little

A negotiation will never be successful unless both parties leave the negotiations with something. For example, in exchange for a creditor allowing you to settle your debt you may have to give in return the promise of an immediate payment in the form of a cashier’s check or a wire transfer. For that matter, in order to get a creditor to allow you to lower your monthly payments you might have to give it a lien on another of your assets. However, the goal here is to give as little as possible in exchange for getting as much as you can.

Know who has the edge

Whichever party has the edge in your negotiations will have a better bargaining position so that you, as the other person, will likely have to give something extra in order to have any chance at all of leaving the negotiations with something that will be of help to you. In negotiating with creditors, they almost always have the strongest position. And this is really true for your secured creditors. The reason for this is that if you can’t make a deal with them they can always repossess your collateral.

Above all hold your temper

Finally, never get angry, confrontational or demanding. If you do this the creditor may simply cut off negotiations. If you get to the point where you feel as if you’re about to lose your cool, just end the conversation and then call back after you’ve had time to cool down and clear your head.

If you’re having a hard time keeping up with your bills you’re probably receiving calls from your creditors or, worse yet, from debt collectors. If you talk with them, it’s possible you’ll find that they will work with you. Here are seven tips that could help you negotiate with your creditors.

Don’t be a diva

You will need to stay calm even if the person on the other end of the phone is a total jerk. If you lose your temper, you’ll get nowhere. If you find yourself becoming angry, terminate the call and then call back later. If the person on the other end of the phone is, in fact, a total jerk then when you call back, say that you’d like to record the conversation. This is almost guaranteed to ensure better behavior.

Have a story and stick to it

The person with whom you’re negotiating doesn’t need to hear all the reasons why you can’t pay your bills. But that person does need to know if you’re having a financial hardship and what you’re doing to get back on track. You should keep your story short – just a few sentences – that you can use every time you talk with a creditor. Examples of this include, “I was very sick for three months and couldn’t work but I’m okay now and want to get caught up” or “I got laid off three months ago and am trying to get caught up” or “my wife lost her job four months ago. She’s looking very hard for a new one so we can catch up.”

Be sure to take notes

Before you call a creditor make sure you have a pen or pencil and a pad of paper so that you can take notes. You will need to write down the name of the person you talked with and what you talked about. This will give you a record if the creditor or debt collector broke the law and it should help you take the emotion out of things. It’s especially important to take good notes if you’re able to successfully negotiate something. For example, if you were able to negotiate a reduction in your interest rate, be sure to write down the date, the new interest rate and, of course, the name of the person with whom you negotiated.

Determine what you can afford

Again, before you make any calls to your creditors, do an in-depth review of your income and expenses to figure out what you can afford. Then don’t agree to pay anything you can’t afford. If you are able to negotiate a debt settlement you will need to come up with a lump sum payment, which means you will need to have enough money to cover it. If you agree to a payment plan, make sure you understand your monthly payments and total amount you will be paying.

Deal directly with creditors and not collectors

If you can, try to negotiate an agreement with a creditor before it sends the debt to a debt collector. An account that has been sent to collection will do even greater damage to your credit score and your credit history then late payments. Also, understand it’s a myth that if you pay something on the debt, even as little as five dollars or $10, it won’t be turned over to a collection agency. This is just not true. And, unfortunately, once a debt has been turned over to a collection agency, you have no choice but to deal with a collector.

Get it in writing

If you are able to successfully negotiate a settlement or a repayment plan be sure to get everything in writing. Don’t pay a penny until you do so. If you don’t, you might find your terms have changed and it would be your word against theirs. There are stories of people who have been hounded for balances they believed had been resolved years before.

Get some help

If you’re having a problem negotiating with your creditors or coming up with a workable repayment plan, you might want to get a credit counseling agency to help you. It can create a repayment plan called a debt management plan (DMP) and negotiate with your creditors to get your interest rates reduced and any fees eliminated. Assuming your creditors accept your DMP you’ll then have just one payment to make a month to the credit counseling agency in place of all the payments you’re currently struggling with.

Are you being seriously hounded by debt collectors? If so, you might get a free consultation with a bankruptcy lawyer. You may end up deciding not to file but the attorney should tell you what a creditor can and cannot do to collect on your debts.

The good news is that it’s always possible to negotiate a debt. You could negotiate to have its interest rate reduced, to have your payments waived for a few months, to convert a revolving line of credit (think credit cards) into a fixed loan or even to settle it. The bad news is that if you intend to handle the negotiations yourself you need to be a pretty good negotiator. Here are seven tips that may not turn you into a professional negotiator but can help you achieve successful debt negotiation.

Ask for what you want

There’s the old saying that faint heart never won fair maid. When you first contact someone at the lender who has the power to negotiate with you, don’t be afraid to ask for what you want. The trick is to be assertive without being aggressive. For example, if your goal is to negotiate a reduction in your interest rate you need to be prepared to ask for what you specifically want.

Know when to shut up

One of the mistakes that many amateur negotiators make is that they don’t stop talking. They drone on and on, explaining everything from why they need to negotiate the debt to what happened to them on the way to work today. There are times when the best thing you can do is just shut up and listen. The person on the other end of the phone may tell you everything you need to know, making it easy to bring the negotiations to a successful conclusion.

Be like a Boy Scout

The Boy Scout motto is “Be Prepared”. You need to adopt this mantra. No lender will agree to negotiate anything about your debt unless you’re having a financial emergency you can document. Your emergency could be a job loss, a death in the family, a divorce or because you were hit by a huge medical bill. This is the “be prepared” thing as you shouldn’t make that first call until you have all the appropriate paperwork together. This could be your termination notice, a copy of that huge medical bill or your divorce decree. For that matter, the lender’s customer service person may even require you to send in that documentation – to prove you have a legitimate emergency and are not just trying to scam the company.

Expect the best outcome

Successful negotiators have several things in common, one of the most important of which is that they are optimists. If you expect to get more, you’ll probably get more. One trick for getting more is to open the negotiations with an extreme position. As an example of this, let’s suppose your goal is to settle a $4000 debt for $2000. In this case, you could open the negotiations by asserting that the best you could do to settle the debt is $1000. The person on the other side of the phone is never going to give you more than you ask for so it’s always best to be optimistic and ask for more than you actually expect to get.

Don’t take the other person’s behavior personally

That person on the other end of the phone line will be a professional negotiator and his or her job is not to give the company’s money away. He or she may actually act like a jerk. But don’t take this personally. You’re not defending your wife’s honor or your child’s behavior. All you’re trying to do is negotiate a better deal. The important thing is to not obsess on the other person’s behavior but to always remember that what you’re trying to do is conclude an agreement that will be satisfactory to both parties.

Patience can be huge

If you’re like most of us and you find it hard to be patient, you will need to force yourself to slow down a bit. The more you rush when negotiating, the more likely it is that you will make a mistake. Being very patient in the negotiations can actually be devastating to the other negotiator because he or she may start to believe that you’re in no pressure to conclude the deal. When this is the case, the other person may offer some concession you hadn’t even expected in order to move you to closing the deal.

Never be afraid to walk away

If it comes to the point where you believe you’re not going to get what you need, don’t be afraid to walk away. This doesn’t mean you will definitely walk away. It’s a psychological thing. When you’re mentally prepared to walk away the odds are that you’ll be much less inclined to cave in to the other person’s position.

Debt settlement has become so popular that the term has become almost synonymous with debt negotiation. In fact, we have seen many instances where the two terms were used interchangeably.

Why debt settlement has become such a popular option

One way that people can get debts under control is through debt consolidation. There are four ways to do this. People can get a debt consolidation loan, do a balance transfer, get consumer credit counseling or opt for debt settlement. While the first three of these options are good they all have one downside in common. It’s that none does anything to reduce the amount of your debt. They simply shift it from one set of creditors to a new one. In comparison, with debt settlement your unsecured debts could be cut in half, which explains why it has become so popular.

The two types of debts

While the term debt negotiation has come to equal debt settlement for many people there are other things that can be negotiated – at least with unsecured debts. These are debts where you were not required to provide any collateral to “secure” them. For example, credit card debts are unsecured debts, as are personal loans, personal lines of credit, medical debts, department store cards and other types of revolving credit. Mortgages and auto loans are examples of secured debts that cannot be negotiated.

What can be negotiated

If the majority of your debt is credit card debt there are three things you could negotiate besides settlement. You could negotiate to have your interest rate reduced, your monthly payments waived for a period of time or to have the credit card debt converted into a loan at a fixed interest rate and for a fixed period of time.

Getting your interest rate reduced would mean lower monthly payments, which could help you get caught up on your debts. If you were able to get your monthly payments waived for two, three or more months this would give you a timeout to reorganize your finances before starting to again make payments– though you would continue to be charged interest on them. The other option, having your credit card debts converted into a loan, could make it easier for you to repay your debt because you might be able to negotiate a lower monthly payment then the payment you’re currently making plus it would free you from that old devil called compounding interest.

Tips for successful debt negotiation

First, before you contact a creditor it’s important to have an objective. As you have read there are three things you could negotiate. So make sure you know what you want from each of your lenders before you pick up the phone.

You will also need to have paperwork ready to prove why you need help. This could include a list of all your debts; the dates when you were last able to make payments on them, your pay stubs for the past several months and a list of your assets if any. It would also be best if you have a “story” or the reason why you’re having a financial emergency.

When you’re negotiating with a creditor stay calm and be civil. The customer service person with whom you’ll be negotiating is a person like you that’s just trying to do a job. And he or she wants to be treated respectfully. No matter how angry you might become there’s nothing to be gained by yelling at a customer service rep. If you find you’re getting angry, hang up and call back later when you’re in a calmer mood.

How to do debt settlement

Debt settlement is simple – at least in theory. You call each of your creditors and offer a lump sum payment to clear your debt. You could begin by offering, say, 40% of what you owe and then try to negotiate to 50%. If your creditor were to agree to a 50% settlement offer you would have cut your debt in half, which should save you a lot of money.

Why people use debt settlement companies

You could definitely settle your debts yourself. But there are good reasons why most people choose to use a debt settlement company. The most important of these is that you wouldn’t need to have the cash on hand to make those lump sum payments. And, of course, it eliminates the need to negotiate with creditors in person, which would be a very scary experience for many people.

Which would be your best option?

If you owe $7500 more in unsecured debts then debt settlement might well be your best option. Debt settlement companies are for-profit entities and charge for their services. So you need to owe $7500 or even more in order for a debt settlement company to save you money. On the other hand, if you owe $5000 or less you might be better off negotiating reductions in your interest rates as you could do this on your own at no cost.

Since you’re on this website and reading this article the odds are overwhelming that you’re having a problem with debt. Or you might be a member of that small majority of visitors that come here looking for information to help their friends. Regardless of why you’re here you’re interested in successful debt negotiation and we have tips that can help.

Pick a plan

The first step in successful debt negotiation is to choose a plan that works for you. There are five basic options: forbearance, workout arrangement, lump sum settlement, a debt management plan and debt settlement. Here are their pros and cons.

1. Forbearance

A forbearance program can be helpful if you’re having a temporary problem such as a major medical problem that put you out of work for a few months. It’s similar to a workout arrangement as it’s where your credit card issuers agree to eliminate or lower your interest rates and stop adding late fees. Your lender may also allow you to skip some payments until you get back on your financial fee. The downside of this is that it does not forgive any debt. It’s only a solution to a temporary financial problem when you know your income and finances with soon return to normal. Think of it as a bridge from financial stress to financial stability.

2. Workout arrangement

This is very similar to forbearance because under this arrangement your bank may lower or eliminate your interest rate and minimum monthly payments and stop assessing late fees. It’s also possible to ask the credit card issuer to forgive past punitive fees. However, be prepared to see your credit line cut off so that you won’t be able to use your cards. This may also have an impact on your credit score as it will depend on how the credit card issuer reports your arrangement to the credit bureaus. The loss of your available credit will also ding your credit score because it will increase your credit utilization ratio.

3. Lump some settlement

To be able to use this option you must have come into a chunk of money such as from an inheritance. This would give you leverage to negotiate a settlement for less than the full amount you owe. As an example of this let’s suppose you had a credit limit of $3000 but a balance of $5000 with interest. You might be able to go back to the lender and get a reduction if you pay off the debt. Make sure that the lump sum you agree to pay will satisfy your debt and get this in writing. Also be aware that when you pay less than you owe on a debt this will impact your credit score but this will depend on how the card issuer reports this to the credit bureaus.

4. Debt management plan

If there is some reason why you don’t want to negotiate with your creditors yourself, you could go to a credit-counseling agency and get a debt management program. The best of these agencies are nonprofits and are members of the National Foundation For Credit Counseling or the Association of Independent Consumer Credit Counseling agencies. When you choose this option, a counselor will meet with you to talk about your situation and then make repayment arrangements on your behalf with your creditors. He or she will work with your lenders to restructure your debt so it becomes affordable. He or she may also negotiate to lower your interest payments and to eliminate or drop fees. However, again you will end up paying the entire amount that you owe. Any credit card accounts that are included in your program will be closed. Being in a debt management program won’t hurt your credit by itself but when those credit card accounts get closed this will hurt your score again due to what happens to your credit utilization ratio.

5. Debt settlement

This has become increasingly popular since the Great Recession, as it’s the only way to get debts reduced. You can do debt settlement yourself or hire a debt settlement company. The upside of this is that you could see your debts reduced by as much as 50%. The downside is that you may need to stop paying your creditors for months or until they will accept a lower payment. Stopping these payments does damage your credit history though paying a portion of it is better than not paying anything. Plus, those settled accounts will stay on your credit record for seven years.

Check out your debt and income

Before you negotiate with any of your creditors take a hard look at what you owe. Get a breakdown of your bill so you can see how much of it is garbage fees such as late fees over-limit fees, etc. When you separate these out you may be shocked at what you actually owe. Then check out your income and fixed expenses so you’ll know exactly how much you can pay. If you overextend yourself you could end up in worse trouble than when you started.

Start making phone calls

Once you know how much you really owe and how much you can afford to pay it’s time to start making phone calls. Expect that you’ll have to make multiple phone calls and talk to a bunch of different people, some of who may actually contradict each other. The customer service reps that first answer your call will probably not have the authority to negotiate with you though they might not admit it. Let them know you need a department that handles settlement arrangements or workout arrangements. Sometimes the best solution is to ask for a credit manager – or someone with the authority to make the deal.

Also understand that after your initial contact, the credit card issuer can and probably will freeze your credit limit.

Fighting with debt is never a fun thing. Being deeply in debt doesn’t just hurt your pocketbook the stress involved with it can actually hurt you physically by causing heart disease, weight gain and stomach problems. There is an answer to this that can help called debt negotiation. The simplest explanation of this is that you contact your lender’s and attempt to negotiate concessions that would help you better manage your debts. While this could definitely help you get your debts under control there are some important do’s and don’ts associated with debt negotiation you need to be aware of before leaping in.

Don’t think debt settlement is your only option

Debt settlement is where you agree to pay a creditor less than you owe. To make this work you would need to convince your creditors that they need to settle with you or you will declare bankruptcy. Naturally, you need to be able to prove that this is actually the case. But if you can you should be able to settle your unsecured debts for around fifty cents on the dollar. But don’t think that this is the only option in debt negotiation. While it might turn out to be your best option to understand that it will put a mark against your credit score. Plus, there are other good options in debt negotiation. One is to have your interest rates reduced, which would lower your monthly payments so it would be easier for you to manage them. A second option would be to have your payments waived for two or three months. This would give you time to get your debts organized and to make plans for repaying them. Third, if you don’t mind giving up your credit cards you could negotiate to have your credit card debts converted into fixed-term loans.

Don’t wait

Never wait until one of your accounts has been charged off before doing something. This generally happens when you get more than six months behind. The term charged off means that the lender believes the odds of getting repaid our slim or none. But if you’re account hasn’t been written off don’t wait. Be proactive and contact the lender to see if it would be possible to get caught up on the account or to settle the debt.

Don’t ignore the consequences

The two biggest consequences of settling a debt is first, it will lower your credit score – possibly by as much as 80 points. Second, it can have tax consequences. Lenders are required by law to report any settlement greater than $600. When this is the case, you would be required to pay taxes on it. However, in reality many lenders never report this.

Do be prepared

Were negotiating with a lender is important to have documentation ready of your income, your existing debts and your assets. When you asked for concessions, lenders will need convincing proof of your financial hardship. Their goal is not to give away their company’s money – unless you can prove there’s a good reason why you cannot pay your debt in full.

Don’t make empty promises

When you’re trying to wrest concessions from the lender don’t make promises you can’t keep. Make a budget before hand so you’ll know exactly how much you can pay each of your creditors. If you promise too much, you might be able to make only your first payment and then go into default because you can’t handle the remaining payments on the schedule. In this case, your account will be referred to a collection agency, which is something you definitely don’t want to happen. Debt collectors have a bad reputation and for good reason. Most are compensated on commissions based on how much they can collect. That gives them a great motivation to hound you as much as necessary until you give up and pay.

Do make sure to get everything in writing

Whether you are able to get your lender to settle the debt, to reduce your interest rate, to waive your payments for several months or to convert your credit card debt into a fixed-term loan, make sure you get everything in writing. As the old saying goes, a verbal agreement isn’t worth the paper it’s not written on. Whatever you agree on with the lender, ask him or her to confirm everything in a letter or email. If the person refuses to do this, you’ll need to write up everything and send it to the lender certified and return receipt requested. And, of course, keep a copy for your files. Do this and you will never get into an, “I said, he said” argument. And if you settle a debt check your credit report in a month or so to make sure the settlement was reported correctly. There have been cases were creditors failed to report settlement payments to the three credit bureaus even though they are required to do so by law. This would leave your credit reports showing your accounts as delinquent indefinitely. And to make sure that your creditors agree to stop calling you or having debt collectors contact you.

If you’re faced with a mound of debt then negotiating with your creditors can be a good way to achieve debt relief. It can stop those nagging calls from your lenders or, worse yet, from nasty-tempered debt collectors. If you do decide to bargain with your creditors there are some common mistakes that you definitely don’t want to make as they could dramatically decrease the odds that you’ll be able to negotiate favorable settlements.

Not knowing if the debt is unsecured or secured

Secured debts are those where you were required to provide an asset as collateral. The most common of these are mortgages and auto loans. These cannot be negotiated. So your first mistake would be to call your mortgage holder or auto loan provider and try to negotiate. In comparison, credit card debts, medical debts, personal lines of credit, finance company loans and installment loans can all be negotiated, as can many other types of unsecured debts.

Not understanding your creditors’ weak points

When you try to negotiate with a creditor – especially if your goal is to settle the debt – it’s important to understand that creditors do have weak points. For example, they have much less negotiating power than do secured creditors. Also, they have a lot more to lose if they don’t settle and you file for bankruptcy. In this case they would literally get nothing.

If you’re negotiating with a debt collector its important to know that it’s subject to the Fair Debt Collection Practices Act. This limits what it can and can’t do to collect debts. As an example of this, it’s not allowed to call you early in the morning or late at night nor is it allowed to call your employer unless you give it permission. While creditors can sue you it’s unlikely that they will. This is because it’s expensive. Lenders generally see law suits as a last resort because of the money and time required. Also, no lawsuit guarantees that the lender will actually recover any of its money.

Not knowing their strong points

Unsecured creditors are not in the same position of strength as a secured creditor but they do have certain strengths. For example, it can call you repeatedly and make your life miserable even during the negotiation process. An unsecured creditor can sue you for breach of contract. The more unsavory ones may even file suit against you while negotiations are still ongoing. A creditor can garnish your wages but only if it wins a lawsuit against you. If it’s successful it can take the money out of your paycheck and also from your bank accounts.

Paying too much

The majority of unsecured creditors will settle for pennies on the dollar but only if you’re a relatively tough negotiator. Many debtors think they’ve gotten a good deal if they can settle a debt for 80% of what they owe. If you’re smart you’ll start at 40% and then with a little back and forth should be able to settle the debt for 50% or less of what you owe. Be sure to take notes of all the conversations you have with a lender. Then when you arrive at a settlement figure get it in writing. If the lender refuses to send you a letter summarizing the settlement then you will need to write it. State the agreement as clearly as you can with the settlement number you’ve both agreed to and send the letter to your customer service contact. Be sure to keep a copy for your file.

Choosing the wrong debt settlement company

Many people choose to use a debt settlement company to handle the settlement process for them. While there’s nothing wrong with this it’s important to choose the right company. The Federal Trade Commission (FTC) has cracked down on many of the debt settlement scamsters but there are still fraudulent companies out there so it pays to be careful. If a company contacts you this is a red flag. Legitimate companies just don’t do this. The good debt settlement companies belong to the American Fair Credit Council and are certified by the Better Business Bureau. They’ll also have many online reviews the overwhelming majority of which will be favorable. Reputable debt settlement companies never ask for any fees before they settle your debts. If you’re talking with a company that does want any payments up front this is a really big red flag.

If you want to reduce your debt load one good way is to negotiate with your creditors. This can also provide relief from those annoying phone calls from debt collectors. But before you pick up the phone and start calling your creditors there are some pitfalls to avoid. Understanding these pitfalls or mistakes will help you know what not to do and can then increase the odds that you will have some successful negotiations.

Mistake #1: Not understanding if your debts are unsecured or secured

There are basically two types of creditors – unsecured and secured. Secured creditors are those that have an interest in one of your assets such as your house, car, boat, etc. In comparison, unsecured creditors are those where you were not required to provide an asset to secure the loan. The most common type of unsecured creditors is credit card issuers but others include stores such as Target, Home Depot, etc.

The reason it’s important to know this distinction is because some unsecured creditors may try to get you to believe they are actually secured creditors and threaten to repossess whatever merchandise you purchased from them. When you know that the debt is unsecured, you won’t be taken in by this tactic.

Mistake #2: Not understanding your creditors’ strengths

Of course, secured creditors have the top position of strength because they can always take back whatever asset you used to secure the loan. But make no mistake about it. Unsecured creditors also have strengths.

As an example of this they can harass you by calling and demanding payment. Unsecured creditors could sue you for breach of contract. In fact, there are unsecured lenders that will actually file a lawsuit even when you’re negotiating with them. However, try to stay calm and continue in your negotiations.

Unsecured creditors could garnish your wages if it succeeds in its lawsuit against you. They can also levy your bank accounts – again if it wins a lawsuit against you. This means they could take money out of your checking accounts. In the event a creditor wins a lawsuit against you try to keep your bank balances as low as you possibly can and stop any direct deposits to your checking account so as to protect your funds.

Mistake #3: Not understanding their weaknesses

Just as your creditors have strengths they also have weaknesses and it’s important to know what they are.

As an example of these, both unsecured and secured lenders are subject to the laws that pertain to debt collection. If it’s a debt collection agency you’re negotiating with understand that it comes under the regulations of the Fair Debt Collection Practices Act (FDCPA). This act restricts what a collector can do in trying to collect from you. While your creditors are not subject to the FDCPA there are many states – and yours may be one of them – that have laws that limit what they can do in trying to collect from you. And, of course, it’s very costly for creditors to sue you. They generally see this as a last option because of the money and time required and because even winning a lawsuit is no guarantee that they will be able to get any money from you.

Creditors with unsecured loans have even more weaknesses. For one thing, they have much more to lose. If an unsecured creditor is not able to settle a debt with you and you file for bankruptcy instead, it would get nothing. This means unsecured creditors have less bargaining power.

Mistake #4: Not using the right money

When it comes to debt negotiation cash is king. In fact, if you don’t have the cash available to transfer it immediately to a creditor it probably won’t even negotiate with you. You should also not use equity in your home or some other secured property to pay off an unsecured debt. An example of this would be using a home equity loan to pay off credit card debt. When you use the equity in your house it puts your home at risk. It’s also a mistake to use money from your retirement account to pay off unsecured debt. If you were to do this you would likely be assessed a sizable tax for having withdrawn the funds. And, of course, if you take out the money as a loan you will have to pay it back.

Mistake #5: Paying too much

Your unsecured creditors will likely settle with you for much, much less than your balances. This means when you start settlement negotiations you should begin with a very low offer but with the goal of settling the debt for 50% of your balance. For example, if you owe $5000 on a credit card you might start negotiations by offering a lump some payment of $2000 but with the goal of settling the debt for $2500.

Mistake #6: Not documenting everything

When you begin negotiating with a creditor you’ll need to have all the appropriate documents at hand to prove that you’re having a financial hardship. This would include bank statements, credit card statements, paycheck stubs and so forth. When you get into negotiations you’ll need to take very good notes including the date of the phone call, the name of the person with whom you spoke and anything that the two of you agreed on. When you arrive at a settlement figure be sure to ask for a letter or email with the date and the details of the settlement. If the creditor refuses to do this it will then be your responsibility to write the letter or email and send it to your creditor. That way you would have a paper trail proving the debt had been settled and for how much.

Are you sick and tired of struggling to pay off your debts? Do you feel as if you were on a gerbil wheel and that no matter how fast you run you’re only able to stay in one place? You could get off that wheel using a strategy called debt negotiation. It’s a way to get debts under control and in some cases even completely paid off. Wouldn’t it feel better if you were in control of your debts instead of your debts being in control of you? To understand debt settlement and how you could use it effectively, it’s important to know these dos and don’ts.

Do understand what debt negotiation is

Debt negotiation is where you contact your lenders and try to negotiate concessions such as a reduction in your interest rates.

Don’t think you can negotiate all debts

Unfortunately not all debts can be negotiated. You can’t negotiate mortgage and automobile loans nor can you negotiate student loans. It’s also not possible to negotiate alimony, child support, spousal support, judgments and some types of tax debts.

Do understand which debts can be negotiated

Debts that can be negotiated include standard credit card debts, personal loans and medical debts. There are other types of revolving lines of credit such as store credit card debts that can usually be negotiated.

Don’t contact one of your lenders unless you have an objective

It’s just not smart to contact one of your lenders unless you have an objective. If you were to call and just plead for help it’s unlikely that you’ll get it. You undoubtedly have different amounts of debt with different lenders. Before you begin contacting them you need to have an objective for each and it may vary from lender to lender depending on how much you owe each of them.

Do understand what can be negotiated

If you have high interest debt, you may be able to negotiate a reduction in your interest rate. For example, if you have a credit card at 19% you might be able to successfully negotiate it down to 12%, which would certainly lead to lower monthly payments. It’s possible to sometimes negotiate a timeout or period of two or three months during which you would not be required to make your payments. This would give you time to develop a plan for repaying them. Third, you could ask that your credit card debt be converted into a payment program. The advantage of this is that you would then have a fixed payment and a fixed term so that you would know when you would have it paid off. Last but not least you might be able to settle the debt, which means paying it off in one lump sum for less than you owe.

Don’t come unprepared

No lender is going to agree to any concession just because you asked politely. You need to have documentation ready proving that you have a serious financial hardship and need help. This means you should have a complete list of your debts with the amount of each, its due date, the last time you were able to make a payment on it, and a list of your earnings and your assets. If when you gather all of this information you find that you can’t prove a serious financial hardship there is probably no reason to try to negotiate with any of your lenders.

Do be persistent

The first time you call one of your lenders you’ll likely end up with a customer service representative whose job isn’t to negotiate with you. You will need to get the name and direct phone number of that person’s supervisor or manager or whoever it is that would have the authority to negotiate with you. This may require several phone calls and a lot of patience.

Don’t try to settle a debt unless you have the cash

Debt settlement can be a great way to get a debt paid off and for less than its face value. For example, in many cases you might be able to settle a debt for 50% of what you owe. But don’t try to settle a debt unless you have the cash in hand to make a loan sum payment. Very few if any lenders will agree to settle a debt unless you can pay it off immediately. In fact, this is one of the best bargaining chips – “settle this debt with me today and you’ll have your payment tomorrow.”

Do understand that not every lender will negotiate

Many of your creditors will negotiate with you. This is usually true of credit card companies, hospitals, clinics and other healthcare providers. However, be prepared to get turned down as some creditors will simply refuse to negotiate. Their goal is to get the full amount you owe, regardless of what it takes. If you find that a number of your creditors refuse to negotiate you may need to look at some alternative ways to pay them off such as a debt consolidation loan, consumer credit counseling or hiring a debt settlement company. These companies have experienced debt counselors with long-standing relationships with almost all lenders and debt collectors. A good one can often get lenders to negotiate that have refused to work with you. Plus, when you use a debt settlement company it eliminates the need to have the money in hand to pay for your settlements, which can be a real godsend.