The primary advantage of being your own debt management advisor is that nobody knows your personal financial situation like you do. There’s no explaining to a third-party advisor what debts you owe, how much money you’ve borrowed, or any medical issues or job loss issues that contributed to your debt problems.
That information comes in handy when you begin doing your own debt negotiations with creditors and lenders. It’s a do-it-yourself approach that doesn’t come without risk, but if you know what you’re doing, you can save your own bacon if debt gets too heavy for you.
Debt negotiation, also known as debt arbitration or debt settlement, is a sensitive, yet critical, issue. Basically, debt negotiation is a last resort before you start looking at bankruptcy (an issue with which you definitely need professional help). Of course, in some instances, like when an old, forgotten debt suddenly pops up
on a credit report (e.g., an old utility bill from college that you paid but your roommates didn’t), debt negotiation is much easier and can be resolved with a short payment plan with, for example, no interest payments.
The idea behind do-it-yourself debt negotiations is to reduce or minimize the payments you make to a creditor with whom you are, most likely, already in arrears. You can begin doing that by contacting the creditor directly and seeing if they’re amenable to you skipping a payment, knocking a few bucks off your payment, or, as I mentioned previously, eliminating any interest payments. Can’t hurt to ask, right? Another solution is to consolidate your debts, an issue I cover extensively in Chapter 6. Consolidating buys you some time and bundles all your loans and debts into one payment.
If you do handle your own debt negotiations, be prepared to:
• Pay some money up front. Most lenders may want at least 50 percent of your overall loan up front (although that figure, too, is negotiable). Note that some creditors won’t even begin to negotiate until they receive some money from you.
• Deal with an attorney. Most creditors have agents or customer service reps handle some debt negotiations. But at
some point be prepared to see a lawyer get involved who is representing the creditor. Usually, there has to be a substantial amount of debt before this happens.
• Send a money order for any credit payments. If you make any payments with your personal checks your creditor has
obtained, in the process, all your pertinent banking information. What’s the problem? If you’re sued, it’s simple for
the creditor to get at your funds through your bank account.
• Prioritize how any settlement will look on your all-important credit report statement. “Fully paid” or “Debt satisfied” is the language you’re looking for. “Debt still active” is not what you’re looking for.
• Bring a lawyer in to shore up your defense. If negotiations go nowhere, or if either party does not live up to their end of the bargain, the lawsuits can start to fly.
• Be realistic. You might back down a bit and okay a repayment deal that is still too much for you. Don’t agree to any debt payment plan that you can’t pay.
• Find out how far the creditor is willing to go. If a creditor offers three months at no interest, ask for six. Always aim high. And know how much negotiating room you have to work with.
• Pay less for a lump-sum payment but demand that the debt be shown as “Paid in full” on your credit report. Creditors will usually settle for less on the dollar so they get something back. Once they get that, your creditor may be willing to strike any mention of debt from your credit report. Again, it doesn’t hurt to ask.