How to Talk to Your Creditors if You’re Having Money Trouble
When you’re having money trouble, your first instinct may be to hide it from your creditors for as long as possible. However, you may be surprised to learn they are often willing to work with borrowers to come up with an actionable plan for repayment. They know the alternative could well be receiving no payment at all.
We know it’s not easy to pick up the phone and reach out to creditors, but it may be in your financial best interest. Here’s how to talk to your creditors if you’re having money trouble.
Inquire About a Hardship Program
The first thing creditors are going to need to know is why. Citing a specific hardship demonstrates you’re dealing with extenuating circumstances that are making it difficult to pay your bills as you normally would.
In fact, many creditors even have designated hardship programs meant to help consumers through tough times. As NerdWallet notes, although hardship is evaluated on an individual basis, some examples include:
- Job loss
- Reduction of hours or pay
- A medical emergency
- A family emergency
- A natural disaster
- Divorce
The exact terms of any given hardship program will depend on the creditor and the reason, but many lenders will offer a lower interest rates and waive fees for a certain number of months. In exchange, you may have to agree to terms like avoiding taking on new credit or even closing accounts. Be sure to read the details carefully before agreeing — especially if you believe you’ll have trouble making consistent payments even with hardship terms applied.
Know What You Can Afford to Pay
Review your budget before making a single call to a creditor. It’s important to thoroughly understand your financial situation before reaching out, as that is the only way you’ll know what you can truly afford to pay.
Many people in this situation find it helpful to schedule a free meeting with a credit counselor at this point. These qualified professionals can help you evaluate your budget and tighten it up, as well as learn more about the debt relief options available to you.
Negotiate with Creditors
A lot of borrowers don’t know it can be possible to negotiate with creditors. Again, lenders would rather receive something than nothing, so it’s in everyone’s best interest to reach a workable agreement.
Start with an offer lower than the full amount you could feasible afford — like 30 percent. Your creditor will likely come back with a counteroffer. It’s often possible to settle on 50 to 80 percent of your original balance. Keep in mind you’ll also need to work out the terms of repayment, like whether you’ll owe the funds all at once or stretched out over a payment plan. Then be prepared to stick to it diligently until it’s paid off.
Because negotiations can be a nerve-wracking and challenging process, especially for first-timers, some consumers choose to enroll in a settlement program like Freedom Debt Relief. Settlement programs require enrollees to make monthly deposits into a special account to amass funds before kicking off negotiations. They also handle the actual negotiations on behalf of consumers for a percentage of the final agreement.
Get the Details in Writing
Whether you qualify for a hardship program, negotiate on your own or work through a settlement program, be sure to get all the details in writing. If a dispute ever arises, like an error on your credit report, you’ll have the documentation you need to dispute it.
Communicating with your creditors when you’re having money trouble can help you reach a reasonable plan — rather than missing payments without an explanation. Just be sure to have a plan before you call.
Thank you,
Glenda, Charlie and David Cates
