How to negotiate with creditors yourself

By Gina Freeman

Reviewed by Kimberly Rotter

Oct 23, 2023

Read time: 6 min

Couple doing home finances together at home

Key takeaways:

  • If you have unaffordable debt and are struggling with financial hardship, you may be able to negotiate with creditors yourself. 

  • Successful negotiating means convincing creditors to accept less than what you owe as payment in full. 

  • DIY negotiations may be easier to handle one creditor at a time.

You’ve got debt. More than you planned on—and now you’re falling behind on your monthly minimums. But if you’ve also got grit and smarts, you could knock your debt down to size and take control with DIY debt negotiation tactics. 

You’ve got debt. More than you planned on—and now you’re falling behind on your monthly minimums. But if you’ve also got grit and smarts, you could knock your debt down to size and take control with DIY debt negotiation tactics. 

What does it mean to negotiate a debt?

Debt negotiation means offering creditors some percentage of what you owe and asking them to forgive the rest. Most of the time, you offer a lump sum, but sometimes creditors are willing to accept a series of payments. 

Creditors don’t have to resolve your debt for less than you owe, so why would they? Many will accept less if they think the alternative is getting no money at all.

10 steps to negotiate successfully with creditors

The steps listed below can help you maximize your chances for a good outcome. And if you hit a wall, you might still succeed with professional help.

  1. Assess your financial situation

  2. Identify your hardship

  3. Prioritize your debts

  4. Research your creditors

  5. Build up funds for negotiation

  6. Contact your creditors

  7. Propose a repayment plan

  8. Negotiate terms

  9. Get everything in writing

  10. Stick to your repayment plan

1. Assess your financial situation

Start by checking out your income, necessary expenses, assets, and credit rating to evaluate whether negotiating debt is a good idea. 

  • Look at your income. After covering your necessary expenses, how much can you pay your creditors? 

  • Look at your debts. Are your accounts current, a few months behind, or with a collection agency?

  • Add up your assets. Include bank balances, retirement accounts, home equity, and even things you can sell. 

  • Check your credit. If your credit standing is good and your income is stable, you may have other options, such as consolidating your debts with a loan. 

This assessment should help you decide how to tackle your debt problem. If you can pay your bills and have a credit score you want to protect, asking for lower payments might be a better idea than negotiating for a lower total payoff amount. Can you save or borrow a lump sum to offer as payment in full? Are you dealing with a financial hardship that's making it difficult or impossible to pay off your debts? Your financial assessment can help you plan your negotiations.

2. Identify your hardship

Creditors may be more likely to negotiate if they believe you want to pay your bills, but truly can’t afford to. A financial hardship may be preventing you from keeping up with even your monthly minimum payments. If you can demonstrate a hardship—such as a medical emergency, divorce, reduced income, or a large unexpected expense—your creditors may be willing to forgive part of your balances.  And your bargaining position may be stronger if you’re already a few months behind. If you are struggling with ‌significant financial hardship, it may be well worth trying to negotiate to reduce your debt.

3. Prioritize your debts

Negotiating one account isn’t that complicated. But if you have several, things get tougher. 

List your unsecured debts. Most credit cards are unsecured. For each one, include the amount you owe, the interest rate, and how many months past due you are. 

Secured debts are attached to something valuable, like your home or car. You’ll need to keep paying those, work out an agreement with the creditor, or risk losing the asset.

Which creditors should you contact first? You might try the smallest one, or you could target the creditor most likely to sue you for the debt—probably the one with the largest balance. Another approach is to start with the account that's the farthest behind or the one with the highest interest rate. 

4. Research your creditors

Before contacting your creditors, do a little digging. You want contact information for the person or department you’ll be dealing with. And it’s a good idea to check forums and other online sources for other consumers’ experiences with that creditor. There’s a lot of information available about the largest companies. Look for the percentage of forgiveness, how many months past due people were when they successfully negotiated, and how often the creditor sues rather than negotiates.

5. Build up funds for negotiation

For most debts, you’ll need to offer a lump sum in exchange for debt forgiveness. (Some creditors may allow you to make a series of payments instead.) So before contacting your creditors, get some money together. You might withdraw it from your bank account (but not your retirement account), borrow, sell assets, or save up over time. 

6. Contact your creditors

After you decide how much you can offer, contact the creditor. You could call, email, or even send a letter. 

7. Propose a repayment plan

Let your creditors know how much (in dollars, not a percentage) you can afford to pay, and back that up with information or documentation concerning your hardship. Be prepared for some back-and-forth. 

8. Negotiate terms

Know what you want before you open negotiations—and the most you’re willing to pay. Typical terms include the amount as well as the payment terms (a lump sum or a series of payments). If your creditor makes you an offer, you can either accept it or counter it. 

The representative on the phone may promise everything you want, but it’s not real until it’s in writing. 

9. Get everything in writing

Once you reach an agreement, get it in writing. Before sending any money, review the written arrangement. It should include your name, the creditor or debt collector’s name, and the account number. Look for the amount you’ll pay and the payment due date(s).

Make sure the letter clearly states that your payment will completely clear your balance. It may say the account will be “paid in full,” “settled in full,” or something similar. Keep a copy of the letter and proof of payment. 

10. Stick to your repayment plan

Be careful to make the most of your opportunity by holding up your end of the bargain. Pay the correct amount by the due date in the agreed-upon manner. If you commit to a series of payments, make every one on time. Otherwise, the creditor could cancel the arrangement and apply the payments you made to the original balance amount.

Leave debt behind, so you can move forward

Get rid of your debt and free up your cash flow without a loan or great credit.

Tips for successful debt negotiation

You can improve your chances of success with a little care.

  • It’s okay to open negotiations on the low side and come up if necessary. But don’t go higher than you can afford. Don’t forget to account for taxes you may owe the IRS. If you’re insolvent, you won’t owe taxes. Most people who resolve debts through negotiation are insolvent (it means the amount you owe is greater than the amount you own). Use this IRS worksheet to find out where you might stand.

  • Stay calm, polite, and cooperative. You won’t help your cause by being combative or rude. Expect collection efforts to continue while you’re negotiating. 

  • Don’t share information that doesn’t help your cause. If you lose your job, let creditors know. If you have a good lead on a new one, that’s your business. 

  • Leave credit cards alone or use them for necessities only in the weeks before negotiating. Vacation, restaurant, or jewelry purchases on your statements won’t support your claims of hardship.

  • Stay in contact with your creditors. They’ve been known to sue people they couldn’t reach any other way. 

  • Understand your rights. Just because you owe money doesn’t mean creditors and bill collectors can be abusive or call you at all hours. You can make debt collectors leave you alone if they cross the line.

  • Don’t be discouraged. If an original creditor isn’t willing to negotiate with you at first, they might be after your account has been charged off. (Charged off means the creditor has written your debt off for tax purposes. It doesn't mean you no longer owe the money, and it doesn't mean you won’t be pursued for payment.)

How to get help negotiating debt

Negotiating debt isn't a simple process, especially if you’re dealing with multiple accounts. If you aren’t getting the desired results, or you don’t like negotiating, consider working with a reputable professional who specializes in debt negotiation.  

You only pay for results—legitimate debt resolution companies won’t ask for payment until/unless you agree to a settlement they have reached with a creditor. Good companies also won’t promise you angels and roses with statements like “pay only pennies on the dollar.” Or guarantee that creditors will magically stop trying to collect what you owe. 

What’s next

  • Make your debt assessment.

  • Cut way back or stop using credit cards.

  • Decide how you’ll get the money to make offers to creditors. If you choose to stop paying your bills so you can save up, prepare for aggressive collection efforts.

If you still have questions or decide you’d like a professional debt resolution company to do the heavy lifting for you, get a free evaluation from a debt expert.

Gina Freeman - Author

Gina Freeman has been covering personal finance topics for over 20 years. She loves helping consumers understand tough topics and make confident decisions. Her professional history includes mortgage lending, credit scoring, taxes, and bankruptcy. Gina has a BS in financial management from the University of Nevada.

kim rotter 2022 2

Kimberly is Achieve’s senior editor. She is a financial counselor accredited by the Association for Financial Counseling & Planning Education®, and a mortgage expert for The Motley Fool. She owns and manages a 350-writer content agency.

Frequently asked questions

Creditors willing to negotiate debt typically discount balances by 40% to 60%. However, results depend on your hardship, resources, negotiating skills, and the creditor’s policy. Offer less than you’re willing to pay, and don’t exceed what you can afford. Remember to budget for taxes on forgiven amounts unless you’re insolvent. Insolvent means your liabilities (your debts) exceed your assets.

It’s much better to settle. Creditors can try to collect what you owe until the debt’s statute of limitations runs out. That can mean up to 20 years, depending on your state and the type of debt it is. Not paying means you’re subject to collection from the original creditor or any debt buyers or collection agencies that take the debt over. These attempts can include phone calls, emails, mail, texts, social media contacts, and finally, lawsuits. 

Settling debt relieves you of the obligation forever.

Settling debt damages your credit some. Creditors can note on your credit file that you paid less than the full amount owed, and that could cause credit score damage. 

However, the greatest credit damage tends to come from missed payments before you resolve the debt. 

If you have great credit when you negotiate a debt, you can expect a significant negative impact. If you start with poor credit, the damage will be less severe.

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