How to Handle a Debt Negotiation

Eliminating debt is difficult, especially if you're behind on the payments. Since every credit card companies charges late fees and over-the-limit-fees, people who stop paying their credit cards, and those who exceed their limit find themselves in a financial bind. Fortunately, there are realistic and practical ways to eliminate debt. If you can't payoff a credit card, consider a debt negotiation.

A debt negotiation has a negative impact on your credit report and FICO score; however, the damage is far less than filing bankruptcy or ignoring the creditor altogether.

Here are a few tips on handling a debt negotiation.

1. Determine Debt Amount: Before you contact your creditor and suggest a debt negotiation, tally the amount owed. For an accurate number, contact the creditor and ask to speak with a financial consultant. Due to interest payments and daily late fees, the amount owed may be more than the statement balance.

2. Save Enough Money: Based on the total debt amount, determine how much you can afford to pay. Each credit card company operates differently. Some will accept a debt negotiation or settlement, whereas other companies will not. If you owe a balance of $3,000, and can afford to settle the account for $1,500, make sure you have the funds available before contacting the creditor. Once a creditor agrees to accept a settlement, they usually require immediate payment. Don't offer to pay in increments.

3. Write a Debt Settlement Letter: Creditors prefer written debt settlement requests. The creditor will not take your request serious if it's unreasonably low. Negotiations are a long process and the creditor might not accept your first request. If the creditor counters at a higher amount, you may choose to accept their terms or offer a lower amount. Since a debt settlement may be the only way the creditor is able to recoup the money, they are prepared to reach an agreement.

4. Get it in Writing: If the creditor accepts your settlement request, ask for prompt written confirmation. Once you receive the written confirmation, send the payment. Within a few days of payment, the creditor should mail a receipt.

5 Keep a Paper Trail: On rare occasions, creditors do not keep accurate records, and seek additional money after a debt is settled. To avoid this complication, keep records of all emails, correspondences, receipts, cancel checks, etc.

6. Check Your Credit: Within two to three months, check your credit report to ensure that the creditor accurately reported the debt settlement. If your credit file reveals that the account is past due or delinquent, contact the creditor and have the error corrected.