How to Negotiate with Creditors to Reduce your Debt

 Many Americans are drowning in debt, especially medical debt, much of which is on high interest credit cards, getting deeper every year. Don't stick your head in the sand and ignore it. It won't go away; in fact, it will keep growing, often far beyond the original amount charged. 

Many creditors will reduce your interest rate if approached the right way. If you fail to try, you're stuck with debt that you might have been able to reduce with some time on the phone. Failing to pay, or defaulting, can ruin your credit score and future loan prospects, result in legal action against you or even seizure of your property. the biggest impediment to these tactics is debtor inertia according to Wall Street Journal writer Beth DeCarbo (WSJ 2/21/23). 

The BEST resource for persons in debt is the book Surviving Debt: Expert Advice for getting Out of Financial Trouble. Well worth the very modest cost of $20: https://library.nclc.org/SD/subscribe

 "A leading resource for nearly 30 years, and recently named "the best all around guide to navigating debt" by Business Insider, this updated 2023 edition of Surviving Debt provides practical and accessible advice from the nation’s consumer law experts on how to deal with crushing debt."

Since it is tax time, let's start with federal tax debt. "There is one thing about tax bills: They don't get better with age." Moe than 10 million taxpayers were delinquent in 2021 so you are not alone. Failure to file a tax return or pay taxes owed costs 5% of the unpaid taxes each month, up to 25%. On top of that 7% interest, compounded daily, is charged on the amount owed. On top of all that is a late payment penalty of  0.5% of the amount owed, accruing monthly. The longer you wait to deal with the debt, the worse it gets. If you fail to pay, the IRS can garnishee wages, take money from bank accounts, and seize and sell vehicles and real estate. Yikes! If that isn't motivation enough... 

What to do? Contact the IRS to set up a payment plan. If that is not feasible consider an "offer in compromise" which can reduce the overall liability. But avoid scammers who claim they can easily reduce your tax debt... for a fee. Deal directly with the IRS. 

If you've lost your job, incurred massive medical debt (only in America!), you may be able to negotiate to delay paying by convincing the IRS that you simply cannot pay... at this time so the debt becomes temporarily "not collectible" which provide temporary breathing space. 

Credit Card Debt

Borrowers can call their credit card companies directly to negotiate a lower interest rate, lower minimum payment, waive late fees or even reduce the amount owed. Another option is to transfer the debt to a zero interest card (for a limited time) or card with a lower rate but this may only prolong the problem. You need to be able to pay off the debt within the introductory low interest period, otherwise the interest rate on the new card may skyrocket. Absolutely avoid payday loans!

The National Foundation for Credit Counseling https://www.nfcc.org/ can help with credit card debt. The nationwide network can help consumers set up a budget and negotiate with credit card companies to set up a debt management plan. 

Mortgage Debt

Homeowners behind on their payments should contact their loan servicer (listed on monthly bill) ASAP. be honest about your situation and work with servicer to develop a repayment plan. You can request forbearance which can reduce or pause monthly payments. Avoid mortgage relief scammers. 

Student Loan Debt

A lot is in limbo with the Supreme Court decision being decided in summer 2023. Unlike most debts, student loans cannot be written off in bankruptcy. Some Utah politicians who filed multiple bankruptcies and sold homes on short sales and got relief from their debts are dead set against student loan relief. Contact your loan servicer to work out a plan. Explore income-driven repayment plans. Consider consolidating federal student loans with a lower monthly payment. 

Medical Debt

Only in America. The main driver of America's high bankruptcy rate is medical debt. Almost 1/4 of Americans owe medical or dental debt. See other sources in this blog for how to avoid and/or deal with medical debt. Nonprofit credit counseling services can help. Work with the hospital to ask for financial assistance, cost reduction or payment plans. Be prepared to provide documentation for your financial situation. Grants may be available from the Patient Advocate Foundation https://www.patientadvocate.org/.