3 Tips for Negotiating Down Major Payments That Can Impact Your Credit
Written by
Andrew Lisa
Edited by
Amber Barkley
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If your monthly payments are too big to handle, the immediate risk is a financial crisis that leaves you unable to pay your bills. However, the indirect consequence of falling behind — damaged credit — can be even more severe and longer lasting.
If you’re struggling, but your credit hasn’t already taken a hit, it’s essential to act before your score plummets. If that’s already happened, the best you can do is stop the bleeding.
The following tips can help you negotiate lower rates, reduce the amount you owe or secure a pause on your payments until you catch up. Each is unique to different situations, but these strategies can help you preserve your all-important credit history and score during times of financial crisis.
Dealing With a Hardship? Seek Forbearance
According to the Consumer Financial Protection Bureau (CFPB), lenders might agree to forbearance if you’re dealing with a financial hardship that’s making it difficult to keep up with your bills.
Forbearance doesn’t get you off the hook for what you owe, but it can help you preserve your all-important credit score if you’re at risk of falling behind. The process lets you pause your payments entirely or pay a greatly reduced amount for a set period of time, until you’re able to resume your full payments.
Lenders are especially sympathetic to situations like job loss, medical emergencies and natural disasters. If you’ve encountered any of those or a similar setback, the CFPB says to contact your lender right away and request a forbearance plan.
Overwhelmed by Credit Card Debt? Request a Lower Rate
According to Experian, you might be able to lower your APR on high-interest credit card debt just by calling the card issuer and asking for a reduced rate. The odds are in the favor of those with a strong credit history and good score, who have made on-time payments consistently and who have an established history with the card provider, so don’t wait until you get into trouble or miss a payment.
You’ll start by talking to a customer service representative, but if the discussion doesn’t go anywhere, Experian says not to be shy about asking to speak with a supervisor, who might have more power to work with you. One final tip — gather a few rates from competing credit card companies to present to the representative as leverage before you call.
Settle Up With a Reduced Lump Sum Payment Agreement
If you’re already in collections, your credit has certainly suffered and your best bet is to wipe the blemish from your report and settle the account as quickly as possible.
Forbes says many companies will accept less than the full amount if your proposal to pay a reduced lump sum is reasonable. For example, if you owe $10,000, they might agree to accept $7,000 and consider the debt settled.
Make sure to insist that they notify all three credit bureaus that you’ve paid your debt and that the account is closed as part of the agreement, but be prepared for potential tax consequences. Forbes notes that your lender could report your settlement to the IRS, which might consider the difference between what you owed and what you paid as taxable income.
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