Monthly expenses and recurrent debts – mortgage, car loan, student loans, credit cards, medical bills, among others – can get so out of control that you live paycheck to paycheck without any extra money at the end of the month. In fact, your service provider may be ‘kind’ enough to keep your services turned on even if you are unable to pay. You know the effect? Accumulated debts!
Your debt may be as a result of a job loss, unexpected expenses, dwindling business income, or even overspending. Debt, when not properly managed, can affect not only your financial life but also your overall health. Think of being in debt as navigating a mud-filled field with rain boots on. Can you relate?
Have you ever thought of the possibility of being relieved of your debt burden? In case you don’t know, you can negotiate reduced payments with your creditors. This blog intends to expose you to tips on lowering your monthly expenses and eliminating debts by negotiating interest rates, financial obligations, consolidation loans, among others.
How easy is it to negotiate a debt settlement?
Negotiating a debt settlement is not an easy task, especially when you have to consider the best strategy to adopt. Since you are not financially buoyant to settle your bills, it might also be counterintuitive to attempt hiring a debt settlement company. By negotiating directly with your creditors, you not only save time but also money.
You need to prove to your creditors that you cannot afford the current payments. They will seek to see your household budget, which should show your monthly income and essential running costs. Through this, they would be able to know how much of your monthly income you can afford to use in settling your debt.
Mistakes Some Individuals Make
Some individuals, probably out of shame or fear, avoid calls and late notices from their debt collectors. This is a great mistake and clearly suggests gross financial irresponsibility. Rather than avoid your collectors, it is important that you reach out to them early, intimating them on the reasons why you are finding it difficult to keep up with your payments. It will surprise you to know how some collectors are lenient and understanding. Remember, they are also humans and have feelings.
Phases of Negotiation
Negotiation is a dialogue process between a minimum of two parties, often with the intention of resolving a conflict, in this case, a financial one. The process involves four phases, namely discussion, clarification, negotiating an outcome, and agreement. Prior to the process, you should be able to clarify what you intend to see out of it.
The first phase, discussion, involves communicating what you seek in the dialogue. At this stage, it is important that you maintain active listening and ask questions where necessary. However, avoid divulging too much information.
At the clarification phase, you and the other party establish a common ground on which to start the negotiation process.
The negotiation process is where you seek a win-win outcome. At this stage, alternatives should be provided and considered by both parties. There is the possibility of having to compromise, especially when the process is getting longer than usual.
It is expected that both parties would have arrived at a mutual ground. The agreement and its terms should, therefore, be devoid of ambiguity.
What You Need, to Negotiate Your Debts
Negotiating your debts requires that you exhibit certain traits. They include strong communication skills, flexibility, creativity, honesty, self-awareness and awareness of others.
Of all the communication styles, assertive style should be adopted. This is because being assertive makes you appear both confident and thoughtful, thereby decreasing your chances of giving in to demands easily as well as increasing your chances of having a successful outcome.
Forms of Negotiation
In negotiating with your creditors, you can adopt the debt settlement strategy, which involves asking your creditors to accept a one-time or lump-sum payment that is lower than the full balance to fulfill your debt obligations in full. The only downside is the negative impact it may have on your credit score in the future.
Alternatively, you can speak to your creditor, requesting for a lower interest rate. When you take loans with excessively high interest rates, you are kept in debt for an extended period. This is because, rather than paying the actual balance alone, you’re also paying monthly interest charges.
The good news is that there is the possibility of negotiating interest rates, especially when you have good payment histories. You can, for instance, talk your credit card issuers into lowering your interest rate. They are more likely to have a negotiating process with you, which may result in reduced rates.
There is also the place of seeking out promotions. It has been revealed that using a balance transfer to get a lower rate requires that you clear off your debt before the expiration of the promotional period to avoid your balance being subjected to higher interest rates.
Do’s and Don’ts of Negotiation
- State your position and what you seek clearly
- Understand the other party’s position too
- Be calm and professional in your approach
- Be reasonable with the position of the other party. There may be a need to compromise. It is not always a sign of weakness.
- Whatever your position is, be confident and consistent. Don’t shift position; it shows you are not coordinated.
- Seek ways through which you can leverage over the other party
- When both parties have reached a compromise, get the terms of the settlement in writing. It is a way of holding both parties accountable.
- Avoid being confrontational throughout the negotiation process. Remember it is not a heated debate.
- Avoid being emotional. Of course, the other party also wants an outcome that will favor them.
- Avoid prolonging the negotiation process. Know when to keep making your position known or compromise your position and walk away.
- Don’t accept an offer of paying over 50% of your outstanding account balance. If this happens, consider settling with a different creditor.
Other Helpful Tips
- In the negotiation process, always maintain silence after asking for a lower rate, as advised by experts. Based on their experience, waiting for the representative to speak next tends to get the seeking party a better offer.
- Never accept the first offer. Rather, ask for more – incentives and deals that can lower your bill.
- Create the impression that you run multiple credit cards and are willing to settle one of your accounts before you divert the money for other purposes. This tends to get you a competitive offer.
To avoid a vicious debt cycle, avoid taking new loans and build an emergency fund to rescue you from emergency situations that can lead you into taking loans while also helping you in clearing your debt. Remember, building a solid financial foundation is critical to attaining your debt payoff goal.
Seek ways to increase your monthly income. Through the process, you get extra money for debt settlement. For instance, think of items of value you own but do not use. You can earn extra money by selling them off. If you are unable to get a side job, ask for a pay raise or negotiate extra working hours for more cash.
Check out the FREE video series on my 3 Keys to Unlocking Your Financial Freedom! This video series touches on Budgets, Tackling Debt, and Ways to Increase Income TODAY! I created this series for those of you who have been hit hard by COVID-19. I want you to know there is nothing you can’t accomplish and creating a plan of action is always a great starting point.