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How To Negotiate A Payment Plan Or Settlement With Creditors

By Melanie Sullivan

Face it: Negative information on your credit report often is accurate. But even if a credit bureau has verified negative information on your credit report, don't give up. You can negotiate directly with your creditors.

Under the Fair Credit Reporting Act (FCRA), creditors are allowed - not required - to report your credit history. Creditors can add information to your credit report, and they can remove it. But how can you make that happen?

Start by asking for what you want. Tell the creditor that you want to clean up your credit report, and ask for help. Typically, the longer an account has been paid on time, the better your chances of getting negative information removed.

Remind the creditor that you are its customer and that you value doing business with it. Say that although you had trouble making payments in the past, you have paid on time for "x" number of months. Ask the creditor to delete the negative information to better reflect your current ability to pay.

If a creditor says nothing can be done, don't argue. Some customer service reps don't know how or are not authorized to remove the information. Ask to speak to a supervisor or another person in charge of credit reporting.

If you have an account that is delinquent, charged off or in collection, you must take a different approach. Contact the creditor to find out where the account is located. The creditor may transfer you to an in-house collection department or refer you to an outside collection agency.

Once you have determined the location of the account, try to negotiate a settlement. There are two ways to settle an account:

1. Offer a lump sum payment in exchange for the creditor removing any negative statements from your credit report.

2. Offer a payment plan where you agree to make monthly payments until the account is paid and the creditor agrees to remove any negative statements from your credit report upon completion of the payments.

Use these tips when negotiating a settlement:

  • Let the creditor know you are trying to take responsibility for your past credit history and regain control of your financial situation.
  • Explain your situation, but don't over-explain. Tell the creditor what you can do, rather than what you can't do.
  • Start negotiating as soon as possible. Negotiating with the original creditor is much easier than dealing with a collection agency later.
  • Most creditors are willing to negotiate a settlement for less than the full amount of the debt. Some creditors will accept as little as 70 percent of the debt.
  • Don't ask the creditor how much it will accept. Tell the creditor how much you can pay. Never offer to pay more than you can.
  • Create a budget before negotiating a settlement. Creditors may want to know your complete financial situation before agreeing to a settlement.
  • If you can't afford to pay all creditors at once, negotiate a settlement with the creditor with the smallest balance. Once that debt is paid in full, negotiate with the creditor with the next highest balance.
  • Get all settlement agreements in writing. Keep copies of letters, statements, phone call notes and other papers for your files.

And here are some additional helpful hints:

Be polite. This will get you further than anything else when negotiating with a creditor. Creditors spend most of their time dealing with angry and difficult customers. Be courteous, and the creditor will be more likely to give you what you want.

Be specific. Always let the creditor know that your goal is to clean up your credit. Creditors cannot help you if they don't know what you want.

Be flexible. Let the creditor know that you are willing to compromise. Creditors need to meet their objectives, too. If you present a win-win situation, then the creditor can feel good about the negotiation.

Be realistic. Some creditors will refuse to negotiate. Don't take it personally. Wait a few months, then try again.

Above all else, don't give up. The credit repair process takes time. Remember that thousands of people resolve their credit problems every year. By being persistent, you can, too.