This is a collaborative post.
If you’ve found yourself in debt and you’re having trouble paying then, sooner or later, you’re going to have to deal with your creditors. However, they may be able to offer more wiggle room than you might imagine. If you want to manage your debt as best as possible and even see some of it written off, then be sure to avoid the following mistakes.
Procrastinating until things get worse
Every money-saving blog around will tell you the same thing: do not delay when it comes to getting in contact with your creditors. The longer you leave it, the more debt you will have to negotiate around. Furthermore, the greater the chances they have of bringing in the collectors, who have a lot less power to negotiate. Get on top of things earlier and you will be better able to come to an arrangement that suits you.
Not telling the whole truth
If you have a good reason for failing to make your payments, stick to your story and do not dramatise it. If you lie to your creditors during negotiations, it can result in legal trouble. More importantly, share the full extent of the potential risk. Most creditors don’t want you to end up bankrupt because it might mean that they will get nothing (or close enough) when you’re completely liquidated.
Not having a game plan and a goal
When you go into negotiations, you should know what you’re aiming for with them. For instance, if you have sold what assets you can and found that they cover about 50% of your total debts, then you should be aiming to get at least 50% of your debts discharged, or at least have enough discharged to offer you some wiggle room to pay off the rest. Start with an offer that’s advantageous to you, but allows you to bargain down to what you actually want.
Not getting it in writing
A formal agreement always beats an informal one. If you’re able to get an IVA, you may be able to have some of your debt discharged while arranging more manageable payments for the next five years. What’s most important, however, is that with a legally binding agreement your creditors can’t take any action to pursue more money unless you fail in meeting the requirements of the contract.
Not knowing your creditors
Before you start negotiating, you need to know how much of a position of strength your creditors have. Know what they are legally able to do, and see if they can, for instance, sue you or garnish your wages, as is often the case with secured loans. However, no creditors are allowed to harass you, so be wary of that and know you can take legal action if it happens.
In the majority of cases, creditors are willing to offer a little help, especially if it’s to help their debtors avoid bankruptcy, which could see them getting very little. Avoid the mistakes above and you should see a much happier outcome.
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