How to Negotiate Your Debt to Find Freedom

November 18, 2013

negotiate debtOne of the most difficult situations to be in is that of someone who feels overwhelmed by debt. Indeed, you might have a great deal of debt – and be unable to pay it all off.

However, going to collections isn’t something that’s desirable, either. If you are in a tight spot, but have the ability to pay off some of your debt, you can negotiate with your creditors for a lower interest rate, repayment plan, or settlement.

What are the Possible Outcomes When You Negotiate Your Debt?

If you are trying to get rid of your debt, you can often negotiate different aspects of the terms if you are upfront and honest. Before you start, you need to have a plan. Get an idea of what you owe and who you owe it to. Also, get an idea of what sort of payments you can make, or if you can access enough cash to make a lump sum payment within 30 to 90 days.

Figure out what you want to accomplish with your negotiations with each creditor. Some of the more common possible outcomes include:

Interest Rate Reduction

You might be able to ask for a lower interest rate on your debt. This can help lower the payments to make them more manageable. Many credit cards will lower the interest rates if you are a reasonably good customer. If you are serious about it, many creditors are willing to drop your rate if it means you will make your payments and they will get a good portion of their money back.

Repayment Plan

If you are having trouble meeting your obligations with the current payment plan, you can ask for a new plan. Be prepared to present what you can pay each month. In some cases, you might be able to get a reduced monthly payment. Some creditors will even forgive some of the loan amount if you can make a reduced payment for the next three years or five years.


Debt settlement is when your creditor agrees to accept a lower amount than what you owe, and consider the debt paid off. In debt settlement, you pay between 20 cents and 70 cents on the dollar. However, you usually need to pay a lump sum. This usually means that you should be prepared to get the cash together to pay the agreed settlement within three months.

Tips for Negotiating Your Debt with Creditors

The first rule of negotiating with creditors is that you need to try to be polite and honest . . . without going into great detail. Mention the basics of your situation: You have a great deal of debt. You can’t meet your obligations. You’d like to negotiate. If you have lost a job, or suffered a large financial setback (such as a family medical emergency), you can mention that.

One of the best times to begin negotiating is when you are about three months behind on your payments (unless you are negotiating for a better interest rate; then you should call while you are still up to date). The creditor probably hasn’t sent your account to collections, but there is the worry that you might be a bankruptcy risk. Call and let the creditor know that you would like to meet the obligation, but your financial situation doesn’t allow it. Present your plan.

The creditor might offer an alternative. You can ask for a day or two to think about it. Figure out if the counter offer is something you can handle. If it’s not, you can come back with another offer that meets the creditor halfway (as long as you can meet that obligation).

Once you do come to an agreement, make sure you get it in writing. Insist that you are sent a copy of the agreement so that you can see the terms of the new repayment plan or settlement. You should also take note of the names and titles of everyone you speak with, and take good notes about the conversation. This is information you will need in the future if something goes wrong.

You can negotiate your debt. However, you need to have a plan. And, if you are unsure about where to start, you can get help from a reputable agency by visiting the The National Foundation of Credit Counselors.

Have you had to negotiate your debt? Leave a comment and let us know how it went!

This article was originally published October 8th, 2012.


Will this article help you save or earn more money? Get others like it simply by entering your email address below. Your email is used only for delivering daily money tips and you can opt out of delivery at any time. Click here to see all your free subscription options.


Miranda writes about personal finance almost every day. An experienced freelance writer, she's covered your money online and in print from every angle and is always looking for new ones.

All posts by


One Response to How to Negotiate Your Debt to Find Freedom


  • How to Deal With Collection Agencies | Money Smart Life