How to Deal and Negotiate With Creditors

Posted by CapWay in DebtApril 24, 2019(Last Updated November 22, 2022)4 min read
Key Takeaways
  • Unexpected issues, like a medical emergency or car issues, can cause financial hardships in your life.
  • If you are unable to make a bill payment, it is important to communicate with your creditor.
  • Financial hardship often results in stress, but know that you have options that will not cause you to go deeper into debt.
Are you ready to make some real money moves?

It is almost guaranteed that some type of emergency will happen during your life that will impact your pockets. Whether it is losing a job, the engine going out in your vehicle, or a medical emergency, having to unexpectedly spend money that you didn't have in your budget or have saved up happens to many people. The financial hit is even worse for those already deep in debt, living paycheck-to-paycheck, or trying to avoid borrowing money from anyone. This is because bill collectors still expect your bills to be paid on time regardless of what is happening in your life or if you are financially struggling. 

 

Paying bills is part of adulting, but if you cannot make your monthly payments, the key is communicating with a creditor. There are five (5) options that may be available for you to responsibly tell your creditor, "I Ain't Got It!"

 

Move the Payment Due Date

 

Most jobs' payment cycle is either once or twice per month. However, regardless of how often you are paid within the month, the majority of your bills are probably due closer to the first. Therefore, if you are paid bi-weekly, change the payment due dates on your different bills so that they align with your two paydays per month. This will relieve some of the stress of trying to pay all of your bills with just one of your bi-weekly paychecks and instead allow you to split payments. It will also help you avoid having to pay late fees on the bills that you couldn't pay until your second paycheck of the month. 

 

 

If you are still in good standing, the app or website of the service you are paying for should allow you to easily change your desired payment due date. On the other hand, if you have already financially fallen behind, you can reach out to your creditor and try to move the payment date to a date within the month that fits your bi-weekly pay schedule.

 

Ask About the Arrearage Management Program (AMP)

 

The AMP is commonly offered by utility companies. An arrearage program can help you get caught up on your past-due balance by allowing you to pay less than the total balance owed.

 

With utility company arrearage programs, you agree to pay a set amount each month. The payment plan usually lasts a year or less. Each time you make a successful payment, the utility company forgives a percentage of your balance. Each company will have different rules for how much of the balance is forgiven each time you make a monthly payment.

Try to Settle Payments Sent to Collections

 

You should attempt to negotiate to settle if you have fallen behind on your credit card, other loans, or any bills payments that have been sent to collections. For example, if you have an active credit card that you are unable to make at least the minimum balance monthly payment, you can try to settle the account with the credit card company. The credit card company may agree to take a lower payment for the total balance due and close the account. 

 

If you have been reported for no payment and sent to collections, you must note that it will cause your credit score to drop due to a derogatory mark. Also, be careful when settling your accounts because anytime you settle a bill, the forgiven amount may be subject to income tax.

Recommended Read: Tips on Tips on How To Improve Your Credit Score

 

Request a Longer Payment Term

 

The suggestion of a longer payment term is helpful with loans, like a car and a mortgage. You have two options that will stretch out your payment term.

 

 

1. You can pay a lower amount each month. However, note that this will result in you spending more money on interest over time.

 

2. You can ask for a forbearance, which allows you to stop making payments for a few months. It is important to note that by pausing payments, your loan term will be extended. For example, if you get a three-month forbearance, the bank will add those three months to the end of your loan term. That means if your final payment under your original loan terms were due December 2021, the three-month forbearance would now mean your last payment on the loan is March 2022.

 

Negotiate The Interest Rate

 

Reducing your interest rate could provide some relief in your monthly payment and reduce the total amount you pay back over time. The best way to negotiate or request a lower interest rate is to call customer service.  

If you have found yourself in a less than ideal financial situation, remember that you have options. But, more importantly, regardless of which choice is best for you during your financial hardship, always communicate with your servicer or debt collector. They will usually try their best to work with you and discuss payment options.

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