Strategies for Negotiating With Creditors

With the right negotiation strategies, you might be able to reduce your debt.

One of the many ways to get control of debt is to negotiate with creditors to lower the overall amount due. When successful, debt negotiation might be an option for avoiding garnishment, bank levies, foreclosure, and bankruptcy. But before you start talking to creditors, make sure you understand some of the key negotiation strategies. You’ll probably want to:

  • consider filing for bankruptcy (and perhaps use this as a negotiation tactic)
  • aim to settle your unsecured debts for 50% or less
  • have money readily available to make payments soon, and
  • be aware of the big picture, so you know your goals.

Sometimes your negotiation strategy will depend on the type of underlying debt. Negotiating with credit card companies, for example, generally requires different tactics than dealing with a mortgage lender.

General Debt Negotiation Strategies

Here are some strategies you can use when negotiating with most types of creditors or debt collectors.

Consider Bankruptcy

If you have a lot of unsecured debt that you could get discharged (eliminated), bankruptcy is an option you probably should consider. While your credit will take a major hit, it's probably already significantly damaged by your missed debt payments.

The most common types of bankruptcy cases that individuals file are Chapter 7 and Chapter 13. In Chapter 7 bankruptcy filings and most Chapter 13 bankruptcy filings, the entire amount owed to the average unsecured creditor is discharged—meaning most unsecured creditors get nothing. Unsecured creditors, like credit card companies, know this, and most would rather settle the debt for pennies on the dollar than wind up with nothing if you file for bankruptcy protection.

Regardless of the actual likelihood of a bankruptcy filing in the near future, hinting to a creditor that bankruptcy is possible might cause the creditor to lower its settlement offer. Though, if you plan to file for bankruptcy, don’t settle debts that can be discharged through the bankruptcy process.

Aim to Pay 50% or Less of Your Unsecured Debt

If you decide to try to settle your unsecured debts, aim to pay 50% or less. It might take some time to get to this point, but most unsecured creditors will agree to take around 30% to 50% of the debt. So, start with a lower offer—about 15%—and negotiate from there.

Have Cash On Hand to Make Payments Soon

Creditors are more likely to settle if you can transfer the payoff funds right away. If you amass a sum of money before negotiations and then offer to send the money immediately to the creditor, you’re more likely to get a lower settlement. As the saying goes, “a bird in the hand is worth two in the bush,” and creditors are more willing to take an offer of cash today rather than have to wait for multiple smaller payments over time.

Know Your Goals, Understand the Big Picture

After several negotiations, you might be able to settle some—but not all—of your debts. While your goal in the dealings should be to wipe out all of your unsecured debts, if that isn’t an option, try to eliminate enough debt so you can pay off the remaining amounts in a reasonable amount of time.

Tips for Negotiating With Particular Types of Creditors

Sometimes your negotiation strategy will depend on the type of underlying debt. Here are some tips for negotiating debts with particular types of creditors.

Negotiating With Credit Card Companies

Credit card negotiations use all of the general negotiation strategies listed above. These debts are easiest to negotiate, although they’ll take some time and patience to get to a reasonable settlement amount.

Negotiating Unsecured Bank Loans

For unsecured bank loans, use the same negotiation strategies as with credit cards. Also, it’s worth noting that the laws that govern banks and the laws that govern credit unions aren’t identical. Utilize the same debt negotiation strategies for each, but keep in mind that credit unions might be able to cross-collateralize debt and make it more difficult for debtors to settle the debt for 50% or less.

Negotiating With Mortgage Companies

Mortgage servicers offer many different options, like forbearance agreements, repayment plans, and loan modifications, to homeowners who are having trouble paying their monthly mortgage bills. Your options will depend on the investor’s (the loan owner’s) guidelines and your situation. You won’t be able to do much negotiating in the loss mitigation process—the loan owner has certain options and requirements. But you should be aware of what alternatives are available for your type of loan, like FHA, VA, Fannie Mae, and Freddie Mac, for example, so you can ask about specific options if the servicer fails to mention them.

Negotiating Car, Motorcycle, Boat, and Other Secured Loans

It’s easier to negotiate these types of secured loans if the loan originated from a small local bank. If you're having trouble making your car loan or lease payments, you might be able to negotiate with the lender or leasing company to get lower payments, get an extension of time to make the delinquent payments, cancel your car lease, or work something else out.

Negotiating Student Loans

It’s very difficult to negotiate federal student loan debt, due mainly to the fact that student loans are difficult to discharge in bankruptcy. But some government programs allow you to reduce your monthly payments in certain circumstances, put off paying loans for a while, or even cancel your federal student loans altogether.

Negotiating Back Taxes

Negotiating back taxes is generally more successful if the taxes are several years old, though you need to avoid pitfalls.

Negotiating With Local Merchants

If you owe money to a local dentist, attorney, auto mechanic, or other service provider, you can negotiate in the same manner as any other unsecured debt, such as credit card debt or unsecured bank loans.

Getting Help

If you think you need help negotiating your debts, consider hiring a lawyer to help you. Good debt settlement attorneys have negotiation skills developed over three years of law school and many years of practical experience, as well as extensive knowledge about debt collections. And if you're unsure about whether negotiating settlements is appropriate for your situation, an attorney can go over all of your options and give you advice specific to your circumstances. The lawyer can help you determine whether you should attempt to negotiate your debts or if you should do something else, like file for bankruptcy. If a creditor initiates a lawsuit against you for a debt, a lawyer can defend you in the suit.

In almost all cases, though, you should not hire a for-profit debt settlement company or other scammer debt-relief company.

Talk to a Lawyer

Need a lawyer? Start here.

How it Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you
Get Professional Help

Talk to a Debt Settlement Lawyer.

How It Works

  1. Briefly tell us about your case
  2. Provide your contact information
  3. Choose attorneys to contact you