Tips to Negotiate with Creditors on Your Own

It is possible to negotiate directly with creditors and settle your debt for less than you owe, but you may want the help of a professional. A quick counseling session from a certified credit counselor can help you discover your options and choose the right path forward.

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It’s not easy to rationalize the next late payment notice or harassing call from a creditor or collection agency as an opportunity to lower your debt. Not when your initial instinct is to bury your head and ignore yet another unwelcome contact.

Just know you’re still going to be buried in debt when you look up again, and that you possibly passed up a chance to negotiate a reduction in the amount you owe.

You can learn how to settle a debt in collections with a Do-It-Yourself approach that isn’t anywhere near as daunting as the Do-It-Yourself bathroom remodel you’ve been putting off for years. But depending on your financial situation – and the kind of debt involved – trying to negotiate a settlement directly with creditors might be a good alternative while providing a way to stop collection calls.

What is a DIY debt settlement? A DIY debt settlement is an agreement where the creditor accepts less than what is owed from the borrower, and the debt is regarded as paid in full.

If you’re drowning in credit card debt, a call to a nonprofit credit counseling agency can help you choose the debt-relief option best suited to your circumstances. If appropriate, the counselor can help you learn the proper approach to dealing directly with creditors before considering a more drastic option, such as filing bankruptcy.

There are effective negotiating strategies at your disposal, some of them specific to what type of debt you need to settle.

Determine If Negotiation Is Right for You

You can’t make the determination about what’s right for you until you’ve calculated how much you owe and how much time you realistically would need to pay off your debts without going through debt settlement.

Total it up. Get a calendar out. Don’t ballpark it. Be honest in your assessment.

If the period required is unrealistic or virtually impossible given other financial obligations, negotiating with creditors might be the best choice.

You shouldn’t expect to get debt relief overnight, but creditors and collection agencies might be more willing to negotiate with you than you think if you are months behind in payments.

Why? In many cases, they are incentivized to reach a settlement out of concern they might end up getting nothing, and having to write off the entire debt.

Dealing directly with creditors would save you the expense of paying a for-profit debt settlement company to negotiate on your behalf. Even the reputable debt settlement companies can overpromise on the terms and the timetable for debt relief. The DIY savings could be significant, as some debt settlement companies charge 20%-25% of the enrolled debt.

Set Your Terms

Once you’ve decided to pursue debt settlement on your own, it’s time for another assessment. How much can you afford to pay on a particular debt? Take time to determine a realistic figure, but it should be 50% or higher.

The last thing you want to do is ask a creditor to negotiate a settlement with you and still not be able to meet the terms of the new agreement because you didn’t accurately assess your repayment capability. A single missed payment could scuttle the entire deal and take (further) dead aim at your credit score.

It’s also in your best interest to have a lump sum of money to offer in settlement. Lump sum payments not only typically cost less than monthly repayment plans but often creditors are more willing to negotiate a settlement with you if they see the immediate and tangible payback a lump sum represents.

Depending on the type of debt, you might offer a lump sum equal to 30% of your outstanding balance. Expect that offer to be rejected. It’s a negotiation after all.

But if the creditor insists on a repayment of 50% or higher – and you have multiple creditors – hold off and make the same offer to another lender. Or call back and talk with a different representative.

You may not feel you’re negotiating from a leveraged position, but, again, creditors and collection agencies (that have often purchased those debts for pennies on the dollar) are often motivated to save time, cut losses and reach settlements.

Tell the Truth and Keep a Consistent Story

Make a list of the reasons you’ve fallen behind in payments. Debt often results from hardships such as job loss, divorce, medical bills. Put them down on paper to use as a reference when you’re negotiating a debt settlement with a creditor.

While lenders might have financial bottom lines motivating them to reach a settlement, they are people, too, people who may have gone through similar challenges in their lives. Keep it polite.

If a creditor trusts that your story constitutes legitimate hardship – and being consistent with the facts affecting your situation helps build that trust – they could be willing to negotiate a friendlier settlement.

The person taking your call on behalf of the creditor is charged with getting as much money as possible out of the settlement. So be patient. Your offer isn’t likely to get accepted on the first attempt. It may take multiple phone calls.

Learn Your Rights Under the Fair Debt Collection Practices Act (FDCPA)

In the event you deal with an unfriendly collector, it’s important to know your rights under the Fair Debt Collection Practices Act (FDCPA) and, specifically, what that collector can’t do under law.

Some examples:

  • Threaten you with arrest.
  • Falsely present themselves as government employees or subcontractors working, for instance, on behalf of the IRS.
  • Force you to repay debts you don’t owe.
  • Shame you publicly.
  • Use harassing tactics.

If you’re subject to, and feel intimidated, by these tactics, write the company and insist it ceases contact. By law, it must honor your request.

Keep Detailed Communication Notes

Make notes on every phone contact you have, whether it’s related to a debt settlement negotiation you initiated or a debt collection phone call you received.

The notes should include:

  • Full names of people you speak with.
  • Time of the call.
  • How long the call went and what you spoke about.
  • What was the tone of the conversation? Was it contentious?

If you are trying to settle debts with multiple creditors, having a record of the calls – including as many specifics as possible – can only help you deliver a consistent message and perhaps reach a speedier settlement.

It’s even more important to keep a log of phone calls if collection agencies become contentious or lapse into bullying on the part of debt collectors.

The same is true of email and regular mail correspondence. Be organized. Keep all communication from each creditor in a file you can access and easily review.

In the event you’re contacted about a debt that doesn’t seem familiar, don’t assume that it’s something you allowed to fall through the cracks. Ask the creditor for proof you owe the debt. Take no action on paying it until the creditor provides proof you owe it.

Negotiate with Creditors Directly

Don’t wait for collection agencies to come after you. Go directly to the original creditor and see if you can negotiate a deal with them.

One clear benefit to negotiating directly with creditors is the opportunity to settle your debt for less before the creditor turns the outstanding balance over to a collection agency.

That’s not going to happen with one or two missed payments, but if a creditor concludes over a number of months that you’re ignoring your debt and don’t demonstrate the intention to pay back what you owe, they might sell your debt to a collection agency without notice.

Your debt being turned over to a collection agency is a blow to your credit score, where the notation changes from “missed payments” to “collection amounts.”

You may still try to negotiate a settlement with the collections agency but you are further down the road in an attempt to reach a more amicable solution.

Get All Agreements in Writing

Whether you’re negotiating directly with a creditor, or dealing with a collection agency, get any agreement in writing. You’ve gone to the great effort of keeping notes and tracking conversations. The final step is to formally document the agreement.

Failure to do so could expose you to getting tracked down about the same debt at a later date. After the sometimes challenging and labor-heavy negotiations to settle what you owe, the last thing you want is to have to go through the process again because you don’t have a written record of the agreement.

Debt Negotiation Alternatives

Some borrowers may have had a bad experience with trying to settle debt with a creditor and don’t want to go through the process again. It’s more likely that borrowers who decide against settling debts themselves are simply not well positioned to do so.

This typically happens when a borrower’s debt is too much for them to see a way out through negotiation or they don’t have access to a lump sum of money to offer creditors in a settlement.

In other cases, borrowers may want to avoid the negative effects debt settlement has on credit. This may be something to consider if you plan to get a loan for a house or car in the near future.

In those cases, there are available options for debt relief:

A Debt Management Plan

A Debt Management Plan (DMP) is a tool offered by nonprofit credit counseling agencies that helps facilitate an agreement between a borrower and creditors.

You make one consolidated lump payment each month to the nonprofit agency. The agency then sends that payment to your creditors, who might offer reduced interest rates on credit cards to 8 percent, maybe less.

Another benefit of a debt management plan is that the monthly payment is calculated at an affordable rate based on the consumer’s budget.  And credit score isn’t a factor in qualifying.

Debt Consolidation

Debt consolidation rolls multiple debts – often high interest debts such as credit cards – into a single payment often at a lower interest rate.

One reasonable way to consolidate debt is through a balance transfer credit card, especially if you can pay down the debt during the promotional 0% interest period. However, in most cases, you will need a credit score above 680 to qualify for one of these.

Another is a debt consolidation loan. These are fixed rate loans that get paid back in installments over a set period of time, usually 3-5 years. Debt consolidation loans make more allowances for borrowers with lower credit scores (at higher interest rates, of course.)

In each case, borrowers can save money over time, but true saving requires the discipline to resist charging more money to credit cards during this critical payback period.


You wouldn’t be the first to feel entirely overwhelmed by debt and consider filing bankruptcy. Creditors may be more open to a negotiated debt settlement if they believe bankruptcy is a looming option.

But before you consider it seriously – and it should be thoroughly researched because it’s a major financial decision – it’s important to understand the different options and ramifications.

Filing Chapter 7 bankruptcy can help you get out from under the bulk of your unsecured debt. Just know that you must first meet qualifying standards and that filing Chapter 7 bankruptcy is a negative mark on your credit report for 10 years.

This type of bankruptcy can affect future loans – both your ability to secure a loan and the interest rate you’d be offered.

Chapter 13 bankruptcy is a repayment plan administered by a bankruptcy court trustee. It allows for payment of key debts over a period of years.

One benefit of Chapter 13 bankruptcy versus Chapter 7 is that it allows you to keep your property while you’re paying off debt. While Chapter 7, also known as “liquidation bankruptcy” can be completed in four to six months, Chapter 13 takes 3-5 years. Chapter 13 stays on your credit report for seven years.

Consult a Credit Counselor

Settling debt can be an overwhelming challenge. A phone call to a credit counseling agency can help you determine whether negotiating debt settlement directly with creditors is the best option for you.

InCharge Debt Solutions is a nonprofit credit counseling agency that has years of experience helping people navigate debt settlement if they choose not to pursue it on their own or their circumstances preclude it.

Bringing the clarity that nonprofit credit counseling offers to a sometimes confusing predicament is a critical first step that can help you identify the finish line and make steady progress toward reaching it.

About The Author

Robert Shaw

After a 45-year career in journalism, Robert's focus is helping consumers cope with personal finance issues. Finding solutions to paying off credit card debt, mortgage payments and that darn student loan, is far more fulfilling than explaining why the Cleveland Browns can't win (It's the quarterback!!). Robert wrote about the Browns and all Cleveland sports as a columnist at the Plain Dealer before transitioning to television sports commentary at WKYC. Now, his passion is helping people navigate their personal finances.


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