People everywhere are accumulating more and more debt and there is a greater demand than ever for services like credit counseling and debt management.
These companies will negotiate with your creditors on your behalf to get lower interest rates, reduced finance charges and better terms on your accounts so that you can pay them off and get out of debt more quickly.
Before you jump in and sign up with a credit counseling or debt management service, consider negotiating with your creditors yourself.
There are several distinct advantages to negotiating your debts yourself.
The greatest advantage of doing your own debt negotiation is that you can protect your credit rating.
While services like credit counseling and debt management companies will negotiate how much you pay each month, they do not negotiate how the item will be reported on your credit report.
That means that the creditor can continue to report the account as delinquent even after you start making your agreed-upon payments.
Most people are behind on their payments when they go to a credit counseling service. The counseling service contacts your creditors, negotiates a lower payment for you, and then you start making that payment right away.
However, the amount that was past-due at the time that the credit counseling service negotiated for you is still past due, and a creditor can continue to report it that way on your credit report even if you are making your payments as agreed.
Additionally, many creditors will report that your account is being handled by a debt management company which can leave a negative impression on your credit report. Accounts handled by credit counseling services are often reported as “paid less than owed” or “account closed by credit grantor” which can both hurt your credit score.
The biggest advantage to negotiating a payment plan with your creditors on your own is that you can also negotiate how the account will be reported on your credit report. That means that you won’t just be getting yourself a better interest rate on the account, but you will also be protecting your credit for the future.
Although it sounds a bit intimidating, negotiating your debt is actually a fairly simple process. Most companies will be more likely to work with you if you are either totally current on your payments and have been a great customer or if you are way behind on your payments. If you are current on the account and have never had any late payments, the creditor will see it as an opportunity to reward you.
If, on the other hand, you are several months behind on your payments, they may see it as their last chance to get any money out of you and will be more willing to work with you rather than be forced to charge off your account as bad debt. If you are just slightly behind on your payments you may have a harder time negotiating. However, it is still possible to get a better rate and you should give up.
Negotiating isn’t difficult. In fact, all you have to do is either call or write your creditor and ask. That sounds pretty easy, right? You’ll need to make sure that you talk to someone who has the authority to make changes to your account so you will need to request to speak to a supervisor or someone higher up. If you encounter any resistance on your first call, try calling again since you will often get a different person who may be more willing to work with you.
When you get someone to talk with, explain your situation and ask for the specific changes you would like to the terms of your account. If you are current on your account and have never been late be sure to point that out.
On the other hand, if you are way behind on your payments explain your circumstances and tell them how getting better terms on your account will make it so you can pay in a timely manner again. Either way, you must convince them that you are serious about staying current with your account and that you plan to make timely payments each month.
At the same time, you also need to negotiate how the account will be reported on your credit report. You should attempt to get them to report the account as “pays as agreed” on your credit report. That way your credit report won’t get damaged like it might with a credit counseling service or debt management company.
Most companies will work with you if they believe you are sincere and that you will continue to make your payments on time. Occasionally you may run into a company that won’t work with you. Don’t let this bother you too much since it is fairly common and the same company most likely would not have worked with your credit counseling service either.
Do your best to pay these companies along with the others. If you have extra money some months it may be smart to pay extra to any of the companies still charging higher interest rates so that you can pay down that balance more quickly and save money on the interest.