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5 tips for negotiating debt outside bankruptcy

When you're facing piling debts, bankruptcy might be the answer, but it might not. Bankruptcy is a powerful tool when used at the right time. You might not be at that stage, but it does not mean you are without options. Did you know that creditors are often willing to negotiate?

Yes, you can negotiate debt settlements outside of bankruptcy. We understand it can be a frightening thought. You might be thinking, "I'm just a little guy, I don't have the skills to negotiate" or "My creditors have all the power, what do I have to offer?" The truth is that creditors want as much of their money back as is possible, which is why they are often willing to listen.

Here are five easy steps to dealing with creditors if you want to get your finances back under control when bankruptcy might not be the best solution at the moment.

  1. Assess your financial situation: Instead of staring at a pile of bills and assuming everything is terrible, take the time to honestly assess your financial situation, and get the assistance of a financial advisor if necessary. This helps you to understand the boundaries of what you can and cannot pay when you negotiate with creditors.
  2. Come up with a plan of attack with creditors: Dealing with creditors requires negotiation, so be sure to keep a level head. This is especially important because creditors may very well try to scare you by mentioning lawsuits. Also, get them to clarify anything they say so you know exactly what is being negotiated. In addition to being common sense for any negotiation, this helps insure you are not being dazzled by hollow legal jargon.
  3. Agree to a plan: Actually reaching an agreement may involve several weeks of offers and counter offers. Use this time wisely and determine the minimum amount the creditor is willing to accept. If the negotiation waters feel right, float an offer of between 50 to 70% of what you owe, and explore whether they would be more amenable to receiving payment as a lump sump over as part of a payment plan.
  4. Stick to it: After you've made sure that all parts of the negotiation are firmly in writing and signed by the appropriate parties, it's of the utmost importance to stick with the plan. Missing payments can result in a number of negative outcomes, ranging from further damage to your credit rating to being forced to pay the original amount owed plus additional fees and/or interest.
  5. Follow up: In addition to helping make payment arrangements, one of the main incentives of working with a creditor is to mitigate any damage this debt has done to your credit. It's important to not only get agreements in writing, such as an agreement to alter what they originally reported to the different credit agencies so long as you pay a certain amount, but to follow-up with both the creditors and the credit agency to verify that this change has been made.

Being in debt is a terrible feeling, but don't forget that you have many options. These five easy steps can help to secure your financial future, and if you need it, assistance is always available through resources such as an experienced bankruptcy attorney.

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