The Truth About Negotiating Settlement Amounts with Your Creditors

Madeleine Jones
December 20, 2017

Image of a credit reportConsumers should be cautious when using debt settlement companies that promise the moon but often deliver far less when the negotiations are over. When negotiating with a credit card provider, bank, collection agency, etc., there are some hard truths that consumers should know before buying into the promises that debt settlement companies peddle.

The Importance of Hardship

No matter how large or small the debt, creditors won’t reduce an amount owed to them unless the debtor has a significant hardship. Creditors will negotiate settlements if it can be established that the debtor has a high debt to income ratio, has lost a job, is going through a divorce, or is suffering a debilitating medical condition. If no hardship exists, it is unlikely that the creditor will negotiate a lower settlement amount.

An Attorney Can Negotiate Settlements

Consumers don’t have to use an attorney to negotiate a settlement with creditors, but it most certainly helps. A debt settlement attorney with experience negotiating with creditors can prepare the necessary paperwork to dispute inaccurate information on a credit report. An attorney can also identify and establish the individual’s hardships and the amount that they can pay on outstanding balances within a settlement offer. Hiring an attorney reduces the possibility that an offer will be rejected and ensures that the consumer’s rights and best interests are protected during the negotiation process.

Consumers Don’t Need to Pay Advance Fees

In 2010, the Federal Trade Commission banned debt settlement companies from collecting advance fees. Debt settlement and credit repair companies that ask for advance fees are often scams attempting to take advantage of consumers who aren’t familiar with this little-known rule. Additionally, debt settlement may not be the best option. An attorney can review a credit report for inaccuracies, dispute errors, and take legal action when the mistakes are not corrected. When inaccuracies are not at issue, an attorney can refer the client to a reputable credit repair agency that does not collect fees in advance.

Credit Scores Will Take a Hit

It is common for debt settlement companies to mislead consumers into believing that their credit score will not be impacted by a negotiated settlement. The truth is that credit repair and negotiating settlements with creditors does lower a consumer’s credit score. It is exceedingly rare that creditors do not report this information to the credit bureaus.