Negotiate debt payment plans before disaster strikes

Tell lenders about pending problems, and they might work with you

Opening Credits
Columnist Karin Price Mueller
Karin Price Mueller is an award-winning writer with a specialty in personal finance.

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Question for the expert

Dear Opening Credits,
We relocated in June. We were upside down on our home and had to use $40,000 from my husband's 401(k) to pay the mortgage. We have $50,000 in credit card debt, and I just lost my job. We were breaking even each month (with nothing going to savings) but now are about 60 days away from defaulting on our cards unless I'm able to find a job. We have always had great credit payment history and good FICO scores (me, 660, and my husband 700+). Would I be able to contact these card companies and negotiate based on the fact that we won't be able to pay if I don't find income, and what will it mean for our credit? Do we have to wait until we positively cannot make payments anymore? -- Jane

Answer for the expert

Dear Jane,
Don't wait! Go straight to your telephone, and start talking to your lenders. If your credit scores are as high as you say, you'll have a pretty good chance of negotiating a more manageable payment plan until you get a new job. 

Start by explaining your current situation, and let your lenders know you're not trying to skirt on making payments. Tell them you want to take responsibility for your debt, but you're facing a blip in your income, and you want to come to an agreement before you're forced to miss any payments. (Dealing with a collection agency will be much more difficult and damaging to your credit score than negotiating with the lenders now.)

Rather than waiting for the lenders to tell you how much they expect you to pay each month, figure out your budget (without your income) and determine how much you'll be able to afford to pay. Offer that amount to the lender, but be careful here. If you promise to pay more than you can afford, before long, you'll be once again calling the lender to renegotiate, and you'll be right back where you started.

Creditors want to get paid, so you have a good chance at success in your negotiations, especially if you have a good payment history.

When you do come to a payment agreement, request that the lender send it to you in writing. This way, if there's a disagreement in the future, you'll have proof that the lender OK'd the deal.

There is an unknown factor, though: how your lender will report your negotiated new payment to the credit bureaus.

Credit bureaus give lenders a variety of options for reporting the status of an account, says Craig Watts of Fair Isaac Corp., the company that created the FICO credit score.

The lender may have different codes it can use to notify the credit bureau that "the borrower has not paid as agreed." You'll need to have a conversation with the lender about how it would report your situation to the credit bureaus -- which you should also get in writing -- and take that under consideration before you agree to a new payment plan.

I'm thrilled to see you want to take responsibility for your debt, but I am concerned that you accumulated so much credit card debt to begin with. What's done is done, and you certainly shouldn't beat yourself up over it, but it's essential that you refrain from adding further to the debt.

See related: What to say if you can't pay

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Updated: 11-23-2017