Working with Creditors

Maybe you've made some bad financial decisions in your past and have the debt to show for it.

Perhaps you've maxed out your credit cards and can no longer afford your minimum monthly payments or have financed a car you can't afford, and you've fallen behind on your car loan payments.

Large amounts of debt can easily overwhelm you. Fortunately, you have options. You might be able to work with creditors to reduce the amount of money you owe or can work with creditors to give you more time to pay back the money you've borrowed.

Before negotiating

Before starting negotiations with your creditors, take an honest look at your financial situation and your debts. You need to know before you begin talking with your creditors exactly how much money you can afford to pay each month to reduce your debt.

To do this, create a household budget. Determine how much money comes into your household each month. Then total the amount of money you need to spend on expenses each month. This can include mortgage payments, utility bills, groceries, car payments, insurance and other items that you must pay each month.

Once you compare your monthly debt obligations to your monthly income, you'll see how much you have left over. You can then decide how much of this money you can dedicate to paying back your creditors. Don't enter into negotiations with creditors until you know this number.

What to negotiate

Once you are ready to talk with creditors, you can ask for several concessions to help you repay your debt.

For instance, you might be able to negotiate a lower interest rate with your credit card company; something that will reduce the amount of money you must pay them each month. You might be able to negotiate new terms with the lender who provided you with your car loan, maybe persuading this lender to extend your payback period, lowering your monthly payments in the process. Maybe a creditor would be willing to allow you to skip two payments without penalty to help you catch up on what you owe.

You might even be able to negotiate bigger-impact solutions. Many lenders might agree to a settlement that would allow you to pay 50 percent of what you owe them. Others might decide to set up a repayment plan that allows you to pay what you owe over a timeframe that works for you and without any added interest or fees.


There are certain tips you should remember while negotiating with creditors. The first is that federal law protects you from harassment from your creditors and collection agencies. Your creditors are not allowed to call you several times a day or at odd hours. They also are not permitted to threaten you.

You also can't be jailed for failing to pay back your debt. The United States does not have debtors' prisons.

Don't be impatient. Negotiating with creditors is a complicated process. These negotiations can last for weeks and include several rounds of offers and counter-offers.

Finally, always remember what you can afford to pay back each month. Never agree to a settlement that requires you to pay more each month than you can afford. This will just get you in more financial trouble.

Information presented in the Northwest Financial Wellness Center is provided for educational purposes only and is not related to actual Northwest products or services. Northwest makes no representations as to the accuracy, completeness or specific suitability of any information presented. Information provided should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Northwest recommends you consult a professional for any specific guidance you are seeking.