Talking with creditors (2024)

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When your income drops and you realize you can't pay all of your bills, it's important to face your debts and know how to communicate with your creditors.

Your past experiences with creditors are important. If you have consistently paid bills on time, your creditors will be more cooperative than if you were late or didn't make regular payments. Creditors are in the business of lending money and/or providing services. They want to keep your business, but they also want to get paid.

Contact your creditors immediately; don't wait for them to contact you. Even if your payment history is less than perfect, you will still make better arrangements by being forthright. Explain your current situation. Tell them your family income is reduced and you are not able to keep up with your payments. Frankly discuss your future income prospects so you and your creditors can figure out solutions to the problem. Most creditors would prefer to receive smaller payments on a regular basis than to begin expensive collection procedures.

Where to begin

Before you and your creditors agree on a reduced payment, determine how much money you have to pay off your debts. Figure out how much income you can count on each month and how much you need to pay for your essential monthly living expenses. You'll need to know who you owe, how much you owe, as well as how you plan to pay them. Deciding which bills to pay firstcan help you review your family situation and figure out a plan to divide your income to pay your family monthly living expenses and set priorities for paying bills.

Contacting your creditors

Once you have gathered the information you need, contact each creditor, explain your family's situation, and ask for their assistance in working out a solution.

Be prepared to explain the following:

  • The reason you cannot pay.
  • Your current income and prospects for future income.
  • Other obligations.
  • Your plans to bring this debt up-to-date and keep it current, including the amount you will be able to pay each month.

Visit local creditors in person. Visit the loan officer at your bank or credit union, the credit manager of local stores, and the budget counselor at the utility company. Don't forget creditors like your dentist, physician, clinic and hospital.

Contact out-of-town creditors by phone or letter. If you phone, write down the name and title of the person to whom you talked. Follow the conversation with a letter summarizing the agreement between you and the creditor. Keep copies of your correspondence as well as any replies.

As you negotiate with each of your creditors, don't agree to any plan simply to get off the hook. Be sure you will be able to follow through on the agreement. Establish a payment rate that is acceptable to both you and the creditor.

Here is a list of some alternatives to consider when negotiating with your creditors:

  • Reduce the monthly payment.
  • Refinance the loan.
  • Defer a payment for a short time if you expect your income will increase soon.
  • Reduce or drop late charges.
  • Pay only interest on the loan until you can resume making monthly payments.
  • Voluntarily surrender or give back an item purchased on credit.
  • Sell the item and use the cash to satisfy, or partially satisfy, the debt (you are still responsible for any remaining balance).

Not all creditors will be willing to accept alternatives. However, they'll be more likely to work with your family if you contact them before they contact you. They all want to be repaid and would rather get some money on a regular basis than have to begin expensive collection procedures.

Tell your creditors about any changes that may affect your payment agreement. If you fail to follow the plan that you and your creditor agreed upon, they will be less willing to work with you. You will also hurt your chances of getting future credit.

If you owe a large amount of money, and if your creditors won't accept reduced payments, you may have to consider more extreme alternatives such as arranging for debt payment through a credit counseling service or filing bankruptcy.

If you don't pay your bills

If you miss a payment, you will be faced with increasing pressure to pay. First, you will receive a letter reminding you that you missed a payment and asking you to pay promptly. After that, you may receive a more direct letter demanding payment, or you may get a phone call.

If the bills are still not paid, they will probably be turned over to an independent collection agency. The Fair Debt Collections Practices Act prohibits debt collectors from using abusive or threatening language. They can't call you at unusual hours or threaten criminal prosecution. And they can't discuss your financial situation with others.

Here's what to do if you receive a call from a creditor or a collection agency:

  • Ask for the name of the caller. Get the name of the creditor and the name, address and telephone number of the collection agency. Get the exact amount of the account that is claimed to be due. Write down the date and time of each call.
  • Remain calm. Explain your current financial situation and how much of the bill you are able to pay, according to your repayment plan.
  • Dispute debts in writing. If you believe you do not owe the amount claimed or disagree in other ways, make your reasons known promptly in writing to both the creditor and the collection agency. Request a written statement of your account. Always keep copies of your correspondence for future reference.

Creditors' options

Creditors can take several kinds of legal action against you. These actions are often written into the sales contract you signed. If you fail to make payments, the creditor or collection agency may decide to initiate a lawsuit by filing a complaint. As the defendant, you will receive a summons or notification that a complaint has been filed against you. The case may be settled in small claims court or civil court, depending on the amount of money involved. If you don't respond or lose the case, the court will issue a judgment against you for the amount you owe plus fees for court costs and attorney fees.

What a creditor can do if you fail to pay your bills:

  • Acceleration — The entire debt is payable at once if you miss a payment. The courts can force you to pay by seizing your property and selling it.
  • Repossession — The creditor can seize the item you bought or the property you used as collateral — security — for the loan. If the sale of the property brings less than the amount you owe, you must pay the difference.
  • Wage garnishment — A court order requires your employer to withhold part of your wages and pay your creditor.
  • Foreclosure — If you fail to make your mortgage payment or fail to pay the taxes or insurance on your house or other property, the lender can force the sale of your home. Seek assistance through a mortgage foreclosure counseling agency, such as the Minnesota Homeownership Center. More information is also available from the U.S. Department of Housing and Urban Development.

All of these actions are very serious and could jeopardize your ability to get credit in the future. You can reduce your chances of being harassed by creditors or collection agencies by working out solutions for debt repayment early.

Related resources

Council of Better Business Bureau — Provides objective information regarding businesses, advice regarding consumer decisions, and a source for filing complaints against businesses

National Foundation for Credit Counseling — Promotes financially responsible behavior by offering debt advice and counseling.

Consumer InformationFederal Reserve Bank — Consumer information on mortgage foreclosure resource, credit card use, credit reports and scores, and a helpful credit card repayment calculator.

Boelter, L. (2006). Managing Between Jobs: Deciding which bills to pay first. Madison, WI: Division of Cooperative Extension of the University of Wisconsin-Extension.

Sharon M. Danes, Extension specialist and professor, Department of Family Social Science

Reviewed by Sharon Powell and Sam Roth, Extension educators

Reviewed in 2023

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Talking with creditors (2024)

FAQs

What should you not say to a creditor? ›

Don't provide personal or sensitive financial information

Never give out or confirm personal or sensitive financial information – such as your bank account, credit card, or full Social Security number – unless you know the company or person you are talking with is a real debt collector.

How do you talk to your creditor? ›

How to Communicate With a Creditor
  1. Don't Wait. If you know you won't be able to meet your financial obligations before you actually miss a payment, contact your creditors immediately. ...
  2. Be Honest. ...
  3. Stay Calm. ...
  4. Be Conservative. ...
  5. Offer Specific Solutions. ...
  6. Negotiate. ...
  7. Communicate with the highest-ranking employee. ...
  8. Keep a journal.

How to talk to creditors to reduce debt? ›

Debt negotiation strategies
  1. Ask your lender to reduce your interest rate. ...
  2. Ask about forbearance. ...
  3. Work with your lender to create a repayment plan. ...
  4. Look into debt consolidation. ...
  5. Ask for a reduced, lump-sum payment.

What percentage should I offer to settle debt with a collection agency? ›

What Percentage Should You Offer to Settle Debt? Consider starting debt settlement negotiations by offering to pay a lump sum of 25% or 30% of your outstanding balance in exchange for debt forgiveness. However, expect the creditor to counter with a request for a greater amount.

What is the 11 word phrase to stop creditors? ›

If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.

How do you outsmart a debt collector? ›

You can outsmart debt collectors by following these tips:
  1. Keep a record of all communication with debt collectors.
  2. Send a Debt Validation Letter and force them to verify your debt.
  3. Write a cease and desist letter.
  4. Explain the debt is not legitimate.
  5. Review your credit reports.
  6. Explain that you cannot afford to pay.
Mar 11, 2024

What 4 things to ask for when a debt collector calls? ›

Ask CFPB
  • Who you're talking to (get the person's name)
  • The name of the debt collection company they work for.
  • The company's address and phone number.
  • The name of the original creditor.
  • The amount owed.
  • How you can dispute the debt or ensure that the debt is yours.
Jul 20, 2017

How to settle a collection for less? ›

6 Steps for Negotiating With Debt Collection Agencies
  1. Learn About the Debt. By law, collection agencies must provide evidence that the debt is your. ...
  2. Understand What You Can Afford To Offer. ...
  3. Speak to the Debt Collector. ...
  4. Make Sure All Agreements Are in Writing. ...
  5. Make Your Payments. ...
  6. Negotiate Improvement to Your Credit Reports.
Aug 10, 2023

Is it worth partially settling a debt? ›

Debt settlement—negotiating forgiveness of a financial obligation in exchange for partial repayment—can ease financial burdens, but it will harm your credit. And, if you hire a so-called debt-relief company to help, it will likely be expensive.

How much should I offer to settle a debt? ›

Offer a Lump-Sum Settlement

Some want 75%–80% of what you owe. Others will take 50%, while others might settle for one-third or less. If you can afford it, proposing a lump-sum settlement is generally the best option—and the one most collectors will readily agree to.

What percentage will credit card companies settle for? ›

What percentage will credit card companies settle for? Creditors often accept 20% to 100% of the outstanding balance. The actual amount they are willing to settle for depends on individual circumstances and negotiation skills.

Is it better to settle a debt or pay in full? ›

Settling an account rather than paying it in full and on time signals that you're a risky borrower, which will be reflected in your credit score. Additionally, working with a debt settlement company often means halting payments to your creditor in order to gain negotiation leverage.

What is the lowest a creditor will settle for? ›

Depending on the situation, debt settlement offers might range from 10% to 80% of what you owe.

What will most debt collectors settle for? ›

Not all debt collectors are the same, and that can affect your debt settlement. "Every creditor is different. Some creditors will accept pennies on the dollar, others will not settle for less than 80% in a lump sum payment," says Jessika Arce Graham, partner at Weiss Serota Helfman Cole + Bierman.

How to dispute a debt and win? ›

Dispute in writing, and include any evidence that supports your claims (such as copies of cancelled checks showing you paid the debt or a police report in the case of identity theft). If the debt collector knows that you don't owe the money, it should not try to collect the debt.

What should you not say in a collection call? ›

If a debt collector tries to collect a time-barred debt from you, the most important thing is not to say or do anything that in any way admits that you owe the debt. By acknowledging the debt or even making even a token payment, you might inadvertently restart the limitations period.

What should I not give to a collection agency? ›

You never want to give the debt collector personal information about your finances and assets, such as your Social Security number, your bank account number unless making a payment, your income, or the value of your assets.

Why should you never pay a collection agency? ›

By paying the collection agency directly, the notification of the debt could stay on your credit report longer than if you attempt to use another option, like filing for bankruptcy. When institutions check your credit report and see this information on it, it may harm your ability to obtain loans.

Why should you never pay a charge off? ›

A charge-off can lower your credit score by 50 to 150 points and can also look very bad on your credit report. It signals to potential lenders that you could skip out on your debt obligations for extended periods of time.

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