Negotiating with creditors is a viable way to reduce the debt burden. The key lies in adopting effective negotiation strategies aimed at convincing lenders to reduce the outstanding amount. To achieve this objective, debtors need to prove that renegotiating the terms of the loan and settling the accounts is in the interest of the creditor.
Successful negotiations can help prevent the possibility of bankruptcy, garnishment or bank levies. This eliminates the need worry about the creditor deciding to repossess your home. On the other hand, the negotiations cannot commence until you have demonstrated full commitment to repaying the debt.
To convince lenders, you need to make at least three monthly payments. This helps improve your credit rating and the potential for successful negotiations.
Before you attempt to negotiate with creditors, make an effort to assess your budget and determine the amount you can afford to pay monthly. Itemize your bills, including council tax to obtain a clear picture of your living expenses. As a result, you can approach the creditors with a practical proposal that allows you to reach the full and final settlement with ease.
The household budget will determine the upper limit of what you can pay. It is important to share some of the information with the creditor. Lenders often send debt letters or call you to discuss your account. This presents an ideal opportunity to negotiate with creditors.
You must inform them about your inability to pay the entire amount or higher monthly payments. Lenders are more understanding when you demonstrate transparency and the willingness to resolve the matter amicably.
Debt Management: How To Negotiate With Creditors
For a successful outcome, you can apply a wide variety of debt negotiation strategies. These include:
In This Guide...
Inform the lender about the real likelihood of filing for bankruptcy. This compels the creditor to consider renegotiating the terms of the debt and lower the settlement offer. Unsecured creditors understand the problems associated with recovering outstanding loans in the event of bankruptcy filings.
This makes the strategy more effective. A lender would rather recover a reduced amount than risk losing the entire debt.
Aim For 50 Percent Or Less
Although the debt negotiation process can be long and arduous, it is possible to achieve a reduction of between 30 and 50 percent of the outstanding loan amount. This typically applies to unsecured loans. Experts recommend starting the negotiations with a lower offer, such as 15 percent.
Reduced Monthly Payments
In addition to talking to the creditors about reducing the outstanding debt, you can also negotiate a lower monthly payment. This drastically reduces your overall debt burden. Applying for the Scottish Trust Deed debt solution allows you to negotiate a manageable repayment plan that does not strain your budget.
Negotiating With Debt Collectors
In some cases, you may have to deal with bailiffs and debt collectors because the outstanding account has not been paid for more than five months. Creditors may also sell the debt to a third party. This modifies the situation considerably. You can no longer contact the lender directly.
Negotiating with debt collectors allows you to reduce the outstanding amount or monthly payments. You can aim for a reduction of between 40 and 50 percent. It is vital to put everything in writing after negotiating with debt collection agencies because the debt may still be sold to another third party. The development can create confusion and compromise transparency.
Debt Help Companies
Let the debt collector know that you have sought help from a Scottish debt advice company, this may make them realise you are serious about resolving your situation. Debt collectors may be apprehensive about talking to debt help company as they know the company understands the rules and regulations surrounding debt collection.
They would much prefer to try and communicate directly with the customer as they know they can threaten them and they may not understand the laws.
Have Some Funds Ready
Offering an immediate payment at a reduced amount as a one-off lump sum payment is a practical solution. For instance, if your outstanding loan amount is £20,000, you offer the creditor a one-time payment of £10,000 or slightly less. This is called a ‘full and final settlement’
Creditors consider this option favourable than lengthy settlement offers.
Negotiating Student Loans
Negotiating student loans can be daunting because lenders are aware that this type of debt is rarely dischargeable in the event of bankruptcy. However, you may take advantage of special programs designed to lower monthly payments, write off the debt or suspend payments. This option is only available under specific circumstances.
Know Your Rights
Make an effort to know your rights before approaching a lender. Creditors and debt collectors are expected to adhere to specific rules regarding fair debt collection practices. When you receive debt letters or calls from creditors, you should make an appointment with the aim of resolving the matter amicably. It is also vital to initiate contact before the lender calls you.
If you do not understand some aspects of the settlement offer, ask for clarification. Also, request that the lender give you a copy of the settlement agreement. You should not sign any document unless you fully understand the terms included therein.
The settlement agreement protects you if the lender decides to renege on the agreed terms. A verbal agreement does not provide a legal basis for contesting any change in direction. In some cases, it may be better to enlist the help a lawyer. However, this option translates to additional costs, thus undermining the purpose of negotiating your outstanding debt.
Maintain A Positive Attitude
When negotiating, you should act decisively and demonstrate high levels of confidence. Maintain a positive atmosphere and tone to sway the negotiations in your favour. Adopting an aggressive approach will not help you convince the lender to reduce the debt or monthly payments.
Negotiating Unsecured Bank Loans
For unsecured bank loans, you need to share information regarding your current budgetary constraints based on real living expenses. You can inform the lender about current financial obligations, such as council tax and school fees. This allows the creditor to help you balance your finances by renegotiating terms of the loan.
If you are finding it difficult to repay one or more of your creditors and feel like you need breathing space to consider your options without the threat of creditor action, you can apply for a Statutory Moratorium. This effectively stops creditor action against you for 6 months, offering you valuable time to seek advice and think about your longer term options.
The Statutory Moratorium is not a debt solution, it doesn’t write off debt and does not stop interest and charges from building up, but it does give you time to think and will stop imminent creditor action, such as an earnings arrestment or a bankruptcy petition. Any debt recovery actions already in existence, e.g. an earnings arrestment, will remain in place.
There are no fees to pay for applying for a Statutory Moratorium and the application process is very simple.
Help with debt in Scotland using formal Scottish Debt Solutions
Figures released by the Bank of England in December 2017 showed that consumer debt in the country ballooned to £193 billion. Credit card debt, on the other hand, stood at £66.7 billion, which translates to almost £2,500 for every household. Citizens Advice Scotland network reportedly handled thousands of debt cases every month.
The continued increase in the number of households battling with the debt burden shows the need for the Scottish Trust Deed and alternative solutions. You can find out more about how a Scottish Trust Deed works by calling our team on 0141 456 0430. If you take decisive steps to clear your debt as early as possible, this may allow you to enjoy a brighter financial future.
Trust Deed Example
Example Unsecured Debts
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a Scottish Trust Deed £748
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