If you have high payments that you’d like to reduce, or if you find yourself behind on payments and you don’t see any way to catch up, don’t be afraid to contact the credit agency, in this case another name for a creditor, to negotiate a settlement or new payment terms. Often you can renegotiate debt, settling old debts for less than the full amount or establishing new, lower payments for current debts such as car payments and mortgages. While there are companies that will contact the credit agency and negotiate old debts on your behalf, you can eliminate third party fees by handling the negotiations yourself.
Items you will need
- Current bill
Contact the creditor for your car or house, whether it is a bank, credit union or other type of lending institution. Ask to speak to the person that handles your account.
Discuss the changes that you’d like to see. If you have a specific payment amount in mind, ask if your contract can be adjusted to reflect this new amount. It helps if you have a specific reason for requesting the change, such as a new baby, a move or a change in employment circumstances, since a creditor is unlikely to change your payment amount without a compelling reason.
Consider refinancing your loan, which can result in lower payments over a longer period. This is often a viable solution, especially if you have a good payment history with the creditor. You may need to provide current proof of income, such as pay stubs and tax records, as well as expenses, before a refinancing deal can be approved.
Obtain a new contract from the credit agency that states the new terms and also that this contract replaces the previous one. Review it to make sure it lists the terms you and the agent agreed to. Sign it, and be sure it is properly signed by your creditor.
Determine how much you owe. The best source of information for this is your most recent bill. Make sure that you agree with the amount. You can challenge the bill by writing to the creditor if you feel it is in error.
Set a budget for paying the debt. Your first concern must always be your necessities: shelter, transportation, food and clothing. Money for any other debts comes out of what remains after your necessities are paid for.
Decide if you want to pay for the debt all at once, or make a monthly payment. Offering a lump sum as a complete settlement for your debt can often result in a creditor settling for a lower amount. If you feel that this might take too long, come up with a monthly payment amount instead.
Contact the creditor to discuss your payment plans. Avoid calling if you are feeling stressed or angry, such as when an aggressive agent has called you about your account, since this can cause you to make promises that may not be in your best interest.
Make an offer that is reasonable, but lower than you are able to pay. They will rarely accept your first offer, but instead will respond with a higher counter offer. Settle on an amount that is within your planned budget. Don’t let them push you to promise more than you can afford to pay.
Request that they send everything to you in writing before you make a payment. The best way to handle this is via fax, since you can receive the document quickly and still get your money in before the due date. Check that the document the creditor sends you is signed and dated, and that it includes all of the terms you and the agent agreed on. After you have the document, make the payment exactly as promised.
- Check your credit report to verify that the debt shows as paid. Allow at least one billing cycle, or about a month, for the change to show up.
- Every state has a statute of limitations that defines the length of time you may be subject to being sued after a debt becomes inactive. Contacting the credit agency or making a partial payment can reset this debt timer, so it is best only to contact the agency once you are in a position to settle the debt.
- If you refinance or otherwise lower your payments, the trade-off is that you will end up paying more in interest over the life of the loan.
- Dave Ramsey: Frequently Asked Questions: How Do I Handle My Creditors?
- Federal Trade Commission: Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts
- Washington State Office of the Attorney General: How to Avoid a Repo When You Can’t Make a Car Payment
- Bankrate: Credit Reports Now Free for All
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