8 tips for negotiating debt repayments that will help you pay a fraction of what you owe

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It’s scary to fall behind on your bills. When you can’t pay up, it can be tempting to ignore telephone calls from creditors, hoping that the whole situation will just go away.

Those creditors probably won’t go away -- not unless you pay them, that is.

If you play your cards well, however, you might be able to pay them a fraction of what you owe in order to settle the debt.

"Settled" won’t look as good on your credit rating as "paid in full," but it’s still a big step up from "written off."

To negotiate a settlement, you’ll need to talk to your creditors.

Bring your courage and keep these pointers in mind:

Smart Move 1. Talk to your creditors before your bills are 60 to 90 days overdue.

Don’t wait for the bill to be turned over to a collection agency. Collection agencies are typically more aggressive, less willing to compromise, quicker to go to court and less interested in maintaining a good relationship with you than your original creditor.

Smart Move 2. Prioritize your payments.

Which bills are the longest overdue? Which creditors’ services will you need the soonest? You probably need to pay the electric bill, for instance, more urgently than you need to pay a credit card company.

Otherwise, pay off the smallest debts first to help improve your credit score. Then use the money that was going toward the smaller debts and apply it to the next-largest debt on your list. This is called the snowball method.

Smart Move 3. Your creditors would rather get some money than no money.

That’s why they’re willing to negotiate.

Try to find out your creditor’s bottom line.

Will they settle for 50% of the amount you owe? How about 70%? Will they cut you a better deal if you offer a lump sum instead of monthly payments?

Smart Move 4. Don’t promise what you can’t perform.

Don’t offer a creditor the money you need to cover basic expenses: housing, utilities, food and child support (if you owe it).

Smart Move 5. Ask your creditor to forgive late fees, accrued interest and nonpayment penalties.

You may be successful if you’ve been a good customer for a while. You might also use your good relationship to negotiate a lower interest rate -- or no interest at all -- while you’re paying off the debt.

Smart Move 6. Get it in writing.

A deal isn’t a deal until you’ve got it on paper (or email).

Smart Move 7. Hold up your end of the agreement.

Make your new payments on time; contact your creditors if you can’t. Creditors are more willing to work with debtors who are at least trying to honor their commitments.

Smart Move 8. Recognize when you need help.

If you can't come to a debt repayment agreement with your creditors, it's time to look for an advocate to help you.

The best place to turn is to contact a member of the National Foundation for Credit Counseling.

The majority of NFCC member agencies charge no fee for negotiating with creditors and dispersing payments.

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