3 Moves That Can Help You Lower Debt Payments
Do you have a large amount of debt? In some cases, you may be able to negotiate it down so you end up paying less money. With certain types of debt, you may even wind up paying just 25% to 50% of your total owed, according to Experian.
However, debt negotiation can be tricky, and many so-called debt negotiation or consolidation companies have a history of charging customers large fees without actually helping them get out of debt, so you have to be careful. Here are a few tips and best practices you can use when negotiating with your bank and other creditors.
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1. Figure Out Exactly What Your Situation Is
Before you end up negotiating with your bank or creditors, you need to figure out exactly what your current situation is. Sit down and write out all of your current debts, such as credit cards, loans or car payments.
See whether you would be able to pay these debts off with your current income if you budgeted your expenses. Debt settlement can severely hurt your credit score in the short to medium term, so the trade-offs should be fully understood.
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2. Check Whether Your Debt Is Secured or Unsecured
See what part of your debt is secured versus unsecured. Secured debt is like a car loan or mortgage, where the creditor can come and repossess your vehicle or car if you don't make your payments, according to Nolo.com. These debts are harder to negotiate, since the creditor may be able to get their money back by repossessing and then selling your home or vehicle.
Unsecured debt, on the other hand, can be easier to negotiate. The only way your bank has to force you to pay is to sue you and then put a lien on your property or garnish your wages. While some lenders may opt for legal action to recover unsecured debt, others choose to sell delinquent accounts to collections instead.
The collections agency will often be the one who will take you to court over the debt. However, since collections agencies buy debt at a discount, your bank may be willing to negotiate a lower payment with you before selling your debt. If your debt is already with a collections agency, the agency may also be willing to negotiate.
3. Talk to Your Bank About an Agreement
If you have a large amount of credit card debt and you aren't able to make payments, you can contact your bank to ask about a hardship agreement or workout agreement. Since credit card debt is unsecured, banks may be willing to negotiate with you instead of risking you going into bankruptcy or other situations where they won't get any of their money back.
A hardship agreement is designed to temporarily reduce or suspend your payments during periods of financial difficulty, such as losing your job. A workout agreement might involve adjusting the terms of your debt to make it more manageable. This could include lowering the interest rate, waiving certain fees, extending the loan period or even reducing the principal amount owed. You may need to provide the bank with documentation that proves your current situation.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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