You can negotiate new terms with creditors

The first concept to grasp when dealing with debt, such as those involving credit cards, is that you can and should avoid it altogether or at least work hard to minimize it. But if and when things get out of hand, you may want to negotiate with your creditors to obtain revised terms that you can manage. This applies to debt collection agencies and mortgage lenders.

Hire a pro or do it yourself

It’s important that when you see trouble on the horizon, you become proactive. You have two ways to initiate the negotiation process: (1) You can hire a debt negotiation service and/or a lawyer to do it for you, or (2) you can try doing it yourself. If you choose to do it alone, you'll need to know how to write a debt negotiation letter.

Video: How to Negotiate with Lenders

Getting started

• Make sure you understand the terms and conditions -- fees, surcharges, taxes, interest rates -- of the debt and what you can afford. This will help you determine what you will be requesting of the creditor. Be realistic. An offer that’s too low will likely be rejected; an offer that’s too high won’t solve your problem. If the creditor denies your first offer, be prepared to try again with a slightly higher one.
• Don't threaten anyone or hint that you will file for bankruptcy if the creditor won’t give you what you want. That could make any future negotiations more difficult than they need be.

Credit card negotiation letter template

You can use the template below to create your own letter to a debt collection agency.

• Don’t use this exact wording. Try to personalize it so that it does not appear to be something you cut and pasted from a website.
• Be sure to use the name of a real person at the debt collection agency, avoiding the lazy-sounding “To Whom It May Concern” or “Dear Sir or Madam.”
• Send it by certified mail.
• Save a copy for your records.

[Today's date]
[Your address]

[Mr./Ms. debt collector's full name]
[Debt collector's address]

RE: [Account number if you have one]

Dear [Mr./Ms. debt collector’s last name]:

I have received correspondence stating that I owe your company $[XXXX]. I acknowledge that I owe that amount. However, unforeseen financial problems prevent me from making the full monthly payments you request. I want to bring this matter to a mutually beneficial resolution.

I will make payments of $[XX] at the beginning of every month, starting on [date], if you will send me a letter stating your acceptance of this plan and agreeing to send proof of it to all credit reporting agencies, noting “Paid as agreed.”

Once I receive your letter, I will send you a cashier's check or money order in the agreed amount of $[XX].

Yours Truly,

[Your signature]
[Your printed name]

Follow through and follow up

Let’s assume the creditor has agreed to your terms. You must now prove that you have, too, so make payments promptly and in full. Be sure to get and save written confirmation of the creditor’s receipt of each payment. Communicate with the creditor only on paper and by certified mail. Keep all correspondence. Finally, be sure to follow up on all agreements you negotiated to ensure that the creditor has kept his or her promises. For instance, if the creditor agreed to clear the debt on your credit report, make sure that the clearance actually does show up within a few months.

Video: Professionals are available to do debt negotiations for you

Finding professional help

After all this, if do-it-yourself debt negotiation seems to be beyond your comfort level, don't hesitate to contact an attorney specializing in consumer debt resolution. He or she will be happy to check over your negotiation letter or prepare a letter for you. He or she will also be able to offer suggestions for further action.