GMR 108: Working with Creditors to Pay Off Debt
Even if you find that you're not able to make your minimum payments, you can still achieve your goal of getting out of debt if you take the right steps. In this episode of GMR, we reveal the strategy you can use to gain cooperation from your creditors and move toward being debt-free. From communication to negotiation, we show you how to work with your creditors to pay off your debt.
SHOW NOTES
You’ve created your debt snowball & your budget, you might discover one of four things:
Enough to pay the debt, great …. Pay it … better yet, attack it!!
Not enough to pay your monthly debt payments, but can pay a portion
Pro-rata + lots of communication & sharing info with creditors
Pay on pro-rata everyone, if someone doesn’t accept the smaller payments, stop sending them money and instead store it up
Not able to pay monthly payments, and they won’t work with you…
You’ve passed the time period to pay creditors, now they’ve sold the debt to an independent collections agency.
Save up cash to negotiate and settle with the collections agency
Communication is Everything!
Start a communication log including your budget, total debt, number of creditors, contact info, and records of each phone call / communication.
Start building an emergency fund - 1 Month of income.
Emergency fund comes before paying off debt because you’ll go back to credit cards if you don’t have savings.
Set a schedule of how often you’ll speak to each creditor. Once a week or every other week.
Use the communication log to contact each creditor and let them know why you won’t be able to make the payment.
Store up as much cash as possible. Creditors will want a lump-sum payment, direct to them.
Never send money without first getting it in writing that the payment will cause your debt to be “paid in full”.
Debt Negotiation
Settling your debt has two parts: Negotiating how much money you can pay and how it’ll be reported on your credit report.
Your credit will be deeply hit by missed payments, late payments, and total debt usage ratio problems. But there is a little hope to turn the ship back a little quicker.
When you negotiate, as for specific terms to be noted on your credit report. The creditor has the ability to change the language they use when reporting to the credit report companies.
Settled debts are generally marked as “Settled” or “Paid Settled,” which doesn’t look great on credit reports. Instead, you’ll try to get your creditor to mark the settled account “Paid as Agreed” to minimize the damage.
When you call:
Write a script of what you’re going to say on the call, share your story, share the reason you can’t make payments, and be ready to call again. This likely won’t be finished in one phone call, it may take many calls along with talking to various customer service representatives till you get someone on the phone that really understand and has the authority to negotiate with you.
You will likely revise your script with each call as you learn what questions to ask and what things you need to share. You will learn this quickly and it will get better with each call. Remember the people on the phone are human too. They’ve heard a million sob stories and are trained to not be emotional. Try to be clear and concise in the info you give them.
Credit Contact Letter Sample:
Address _____________________________
Date ________________________________
To: _________________________________
RE: Account# _________________________
Please accept my apology for not contacting you earlier about my account. During the past few months, my financial situation has deteriorated considerably. I realize that the timely payment of debts is a firm obligation on my part; that is why I’ve been making the minimum payment even though I did not have the income to provide for my needs and also make my debt payments. I can no longer continue to borrow in order to make my debt payments.
In an effort to get control of my financial situation, I am currently working with Leo Sabo, a budget and debt counselor (www.leosabo.com). Together, we have developed a spending plan that will help me bring my finances under control and avoid future indebtedness.
Attached is a Monthly Income and Expenses form which specifies my current budget. Unfortunately, at my current income level, I have no additional income to satisfy my current monthly debt payments. I am sorry for being in this situation. It was never my plan to be in this predicament and I plan to rectify this situation, in time.
Although I do not have the ability to pay my debt payments to you from my regular income, I plan on using any additional income from raises, overtime, or any other future income source to satisfy my debt obligations. It is my desire to pay every creditor in full.
You may contact me at __________ between _________ and ________. Thank you for your understanding.
Sincerely,
Debt Negotiation: Strategy
You will likely have many creditors, so discuss numbers with each one, finding out who will give you the best terms.
Start by lowballing, and try to work toward a middle ground. If you know you can only pay 50% of your original debt, try offering around 30%. Avoid agreeing to pay an amount you can’t afford.
Don’t give them electronic access to your bank account or direct deposit access. You want to send them checks or make payments, instead of letting them pull money from your account, because they may pull more than you agree to.
Remember, some creditors will work really well with you, others will be extremely difficult. They don’t want you to go into bankruptcy, but they may end up forcing you into bankruptcy. Your goal should be to avoid bankruptcy, but it is possible for them to push you a place where you have to declare bankruptcy to protect your paycheck.
RESOURCES
Budget Forms and Tools
Creditor Contact Letter
David’s New Book - Jesus on Money
David’s New Website - www.stewardshippastors.com