If you are deep in debt, you know that there are few things worse in the world. The constant worry and the hounding of creditors are ruining your life. If you are willing to do what it takes to get out of debt and change your life permanently, you may be in the right frame of mind to renegotiate the terms of some of your debt.
This article would be especially helpful for people who have experienced a financial crisis such as a failed business, an illness or other financial shocks. If you’ve simply accumulated too much debt over the years, you can use these steps, too, but you’ve was required to be prepared to change your ways and convince your creditors of that.
Here are a few tips to help you renegotiate what you owe.
1. Do it yourself? There are lots of people who will be willing to assist in this for a fee, including some non-profit agencies that can truly be a help in these situations. Save the money and get it yourself. You are liable to end up in a better place as you’ll not be paying any fees so more money can go to your creditors. If you fail on your own, you can always get help from a reputable non-profit agency later.
2. Explain your situation to each creditor. With each person to whom you owe money, make a personal phone call. Explain your situation. Help them understand that you cannot make the payments as scheduled. Do not forget to explain how you’ll avoid further problems and why, once you’ve straightened things out with everyone, you’ll never be back in this situation again.
3. Propose a plan. With each creditor, give an honest and fair proposal for how you’ll eventually pay what you owe. Generally, your proposal will be dependent upon two things: lower monthly payments and lower interest. In some cases—perhaps all—you’ll have to propose complete interest forgiveness. In some cases, you may even need in order to propose that some of the principal be forgiven.
4. Expect to be rejected. Your proposals will often be rejected. Remember, this is a negotiation. You owe the money and the creditor is entitled to collect it. If there is no possible way for all of your creditors to collect what is owed, eventually you should be in a position to convince them that they will have to accept less than the scheduled payments—at least for now.
5. Be persistent. You may have to call some creditors over and over again to locate the right person and work out an acceptable plan.
6. Be complete. As you negotiate with each creditor, be honest with yourself and the creditor. If you can’t make the payments they propose when you look at the sum of all your payments, tell them so. Keep pushing for something that will work—remembering the entire picture.
7. Prioritize. Your creditors aren’t all in the same position. If do not leave a mortgage, that lender is in pretty good shape and may not have much reason to renegotiate with you. If you owe as much (or more) than the house is worth, you may wish to offer to give them the house in satisfaction of the loan and move to a more affordable rental situation. If you owe more on a car than it is good to, offer to give it back while it is in nice shape and marketable, allowing them to avoid the cost of repossessing it. They are not able to letting you keep it if you can’t make the full payments. Sell the car if it is worth more than the loan, using the extra cash to repay other creditors or to buy a clunker. Your unsecured creditors will ultimately have to accept what you give them. While they may be owed $10,000 from you, you can only give them what you have and what you’ll earn.
Ultimately, if you cannot negotiate plans with all of your creditors that will enable you to meet the obligations of each and every one of them on adjusted terms, you may be run for bankruptcy. Talk to an attorney.
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