Tips for negotiating with creditors and avoiding formal debt arrangements

December 6, 2017

If you’re struggling to repay your creditors, informal negotiations could help you avoid having to enter an official debt procedure at a later date. It’s important to act quickly, however – being proactive in the face of debt not only demonstrates your commitment to repaying, it helps to prevent any further financial decline for yourself.

It’s also in your creditors’ interests to negotiate and recoup at least some of their money, and is a better alternative than having to write off the debt completely. So here are some tips and ideas to aid negotiations for a new repayment plan, even if it’s only for the short-term.

Explain your financial position

Providing a clear explanation of why you’re experiencing financial problems can convince creditors that they should allow you more time. A life event such as job loss, divorce, or serious illness, all impact greatly on finances, but sometimes it’s simply the timely acknowledgement of your financial mistakes and willingness to deal with them that persuades creditors to help.

Prepare a budget

To support your explanation with facts and figures, prepare a detailed account of your finances, including income and expenditure. If you can demonstrate that you have limited disposable income after all essential living costs have been deducted, and that you’re not spending unnecessarily, they’re more likely to agree a reduced repayment at least for a while.

Negotiate debts in order of priority

Your budget should detail the priority debts to be tackled first. These will include mortgage or rent arrears, council tax debt, energy bills, and tax, which need to take priority over unsecured debt such as credit cards, overdrafts, and personal loans.

Put agreements in writing

If your negotiations are successful, you should put the agreements in writing before making any new payments. This prevents misunderstandings in the future, and clarifies the new payment arrangement for all concerned.

Seek help when necessary

If creditors aren’t prepared to reduce their repayments, even in the short-term, it’s advisable to seek help from a debt charity or licensed professional. Their involvement can have a positive influence on proceedings, and instil confidence in creditors of your ability to keep up any proposed repayment schedule.

Consider an offer of ‘full and final settlement’

Depending on the level of your debts, and potential access to a lump sum, an offer of full and final settlement can be the best course of action. If you only have one or two creditors, for example, who are willing to accept a significant proportion of the debt, albeit not the entire amount, the pressure of being chased for payment is removed. Bear in mind that failing to pay any debt in full will negatively affect your credit score, but nonetheless, this may be the best option in some circumstances.

Take a business-like approach

Being aware of how much you owe, and understanding your figures, is persuasive. Take a business-like approach in your dealings with creditors – it presents you in a good light, and can be influential to the outcome.

If you can avoid a formal debt arrangement by negotiating with creditors, you’ll lower your monthly outgoings, and gain the ‘breathing space’ needed to regain control of finances for the long-term.

One of the main considerations when dealing with debt is not to ignore it, and to act quickly in contacting creditors. When they’re aware of your financial situation, and your resolve to deal with it, you increase the chances of securing a reduced interest rate for a time, lowering your monthly payments, or extending the term of your borrowing.

Lawrence O'Hara

Insolvency Adviser

Tel: 028 2132 6269

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