Debt negotiation is one tool in an arsenal of weapons you can use against your existing unsecured debt. Essentially, debt negotiation means that you contact your creditor and try to decrease the amount you owe by offering to immediately pay them a smaller lump sum. This will not only save you in the short term by only paying less of your outstanding debt, but will also erase future years of monthly payments.

How Does It Work?

While many individuals hire a professional debt negotiator to work on their behalf, you can also try to negotiate your debts by yourself. While you may not be able to reduce your debt by as much as a professional could, you will be able to offset some of the savings by not having to pay the negotiator a fee for their services.

A personal attempt at debt negotiation is fairly simple if you follow these 5 steps:

Step 1: Find out how much cash you can apply to each of your debts
Step 2: Collect the phone number for each of the credit card companies you use
Step 3: Call each company and explain your financial predicament
Step 4: Offer to pay back a portion of your existing debt in cash
Step 5: Close the credit card account and stay out of debt

How Can This Work?

Most people wonder: Why would a company accept less money than they are owed? The answer is simple—a credit card company would rather have 60% of your outstanding debt in cash than risk having you go bankrupt! The credit card companies know that there is always a risk that you won’t pay back your debt— they view your account as a potential liability. Once you explain that you may not be able to pay back your debt, the credit card companies will quickly negotiate with you to get as much as they can because they cannot be certain that you won’t go bankrupt.

Another Option For Negotiation

In the case that you do not have the cash on hand to pay off even a smaller amount right now, you can also try to negotiate the interest rate on your debt. Again, simply gather together the phone numbers of your creditors and give them a call. While it may be surprising at first, credit card companies will often lower your interest rate if your account is in good standing. Some factors that will increase your chances of reducing the interest rate:

• You have never missed a payment, and are rarely late
• You often pay more than the minimum payment each month
• Your credit score is in good standing
• You have not requested a rate change for that card before

For an in-depth look at what to say to your credit card company’s service representative, see http://moneyfor20s.about.com/od/creditcards/ht/lowerccinterest.htm (it’s an American link, but the advice holds up pretty well in Australia too.

Hopefully you will be fortunate enough to have one of these strategies work for you. If you can, try to negotiate to pay off all the debt at once for just a fraction of the outstanding value first; if that doesn’t work then you can try to persuade the credit card company to at least lower the interest payment on the debt. By explaining your financial predicament and alerting them to the fact that you may not be able to meet your obligations, you may be able to negotiate a favorable outcome for both you and the creditor. But remember, once you are out of debt, you need to evaluate and change your spending habits so that you do not end up in this situation again.

If you’re still not comfortable trying the DIY option, or you’ve already explored that avenue without success, it may be worth talking to a professional debt consolidation service like Fox Symes.

Photo by maveric2003