Do-It-Yourself Debt Management: How to Negotiate With Creditors

By Dawn Handschuh, Personal Finance Writer   

It can happen to anyone. Unexpected medical bills, job loss or other personal crises can trip you up like a slippery banana peel.

If you seek debt consolidation or simply debt reduction, you can hire a debt consolidation company that will negotiate with creditors on your behalf and transfer your debt into a debt consolidation loan. Legitimate firms exist, but the industry has its share of unscrupulous companies that makes finding reputable debt consolidation service providers at reasonable prices difficult. With a little patience, you can avoid paying for expensive debt consolidation loans by handling your own debt management.

If missed payments are multiplying, contact creditors before your delinquent accounts are 90 days late, or they'll be turned over to collections.

Before you call creditors, figure out what you can offer and what will ease your situation. This may include some combination of:

• A reduced lump-sum payout
• Reduced monthly payments
• Reduced, eliminated or frozen interest
• Eliminated late charges
• An agreement by creditors not to report your delinquency to credit bureaus

Preserving your credit should be part of the conversation. The longer you've paid on time, the better your chances of getting negative information removed from your credit report.

Here are some tips for achieving what you want:

• Only promise to pay what you can afford.
• If you're nervous or unsure of what to say, use a phone script.
• Take notes of your conversation, including dates, names and what was decided.
• Confirm in writing anything you agreed to verbally; keep a copy for yourself.
• Be polite, not emotional, angry or accusatory.
• Some creditors aren't receptive. If you're not getting anywhere, continue the conversation at a later date; you'll probably end up talking with someone else who may be more flexible.
• Try negotiating toward month's end, when many companies balance their accounts and may be more willing to compromise.
• Debt consolidation can take several forms, including moving high-interest credit card balances to a card with a 0% introductory rate. Make sure you can pay it off before the offer expires. Keep your balances below 35% of credit limits to preserve your credit score.