What happens if you can’t pay debts? Well, something not good, that’s for sure. Any unpaid debt will continue to accrue interest. Not only that, but late penalty charges and other fees will also be added to it.
If the debt is left unpaid for long, that will also bring it to default status. This is not just for credit card debts or mortgages. Even medical debts are becoming delinquent. According to reports, more than half of Americans with medical debt have defaulted on their bills.
But what’s so bad about letting your debt go to default? Nothing except the fact that debt collectors will start to take over.
When your debt reaches collections, you will find that talking to debt collectors will be much harder. And a lot stressful. This is why you need to avoid this if you can. If you really can’t pay debts right now, you are better off talking to your creditors.
4 rules when dealing with creditors if you can’t pay debts
Some people feel intimidated when thinking about talking to their creditors. Don’t be! As long as you know your rights and you are honest enough about your financial situation, you can talk to them. You may be surprised that your creditors are open to discussing flexible repayment terms with you. This is especially true if you are in the midst of a financial crisis. They even have programs in place for people like you who are struggling financially.
Although creditors are easier to talk to, that does not mean you should not come prepared. You will be talking to them to negotiate your payment terms. You have to know how to do that properly. It is the best way to make them agree in your favor.
Here are 4 rules that you can adhere to when talking to your creditors because you can’t pay debts.
Be honest and polite
Don’t think that just because you are their client, that you can just make demands. You need to remember that your inability to pay off your debts places you in the wrong. You have to be humble enough to admit this to yourself. So when you talk to your creditors, be polite. Let them know that you have every intention of meeting your responsibilities. But given the present circumstances, you just don’t have enough money to meet the original terms.
Keep this in mind as you present the new terms that you can afford.
Be patient but persistent
You have to do your research to know what plans you can use so your payments will be affordable. That way, when you talk to the creditor, you are ready with your proposal. Of course, you need to expect that they will not accept it immediately. Especially if you are asking for a debt reduction. The more you want to reduce your debt, the more they will be hesitant to agree with you.
But if you do it politely, it is possible. And if you are persistent about it, then they may relent.
Be determined and consistent
More than being persistent, you need to be determined. What’s the difference? Well, being persistent is all about the act of calling the creditors to get them to agree to your proposal. But being determined is driven by purpose. To be determined at what you are doing, you need to have a firm grip on your purpose for doing this. When you are driven by purpose, you will find it easier to communicate. And more importantly, it will help you stand your ground. Even if the creditor says no to your proposal, you will not be deterred immediately. That’s because you are driven by a purpose. And that purpose is what will make you consistent in your efforts and what you say to your creditors.
Be committed and firm
Finally, if you want to successfully pay off your debts, you need to stay committed. Whatever plan you decided to use or negotiation strategy, you need to stick to it. This is much like standing your ground. But you have to stick to your plan too. When you talk to creditors because you can’t pay debts, you have to make sure you convince them that you are committed to it. This will increase their confidence that they can trust you to do what you promised. It will be more likely that they will agree to your proposal.
And being committed does not just mean making sure the creditor helps you out with a new repayment program. It’s also making sure that you make lifestyle changes that will improve your financial situation. There’s a reason why you can’t pay debts. And you have to make sure it will never threaten your finances again.
Options if you don’t want to face creditors
Admittedly, facing creditors with the news that you can’t pay debts is not a conversation you’d want to have. But if you really want to do something about your debts, you don’t have a choice.
What you have to realize is that creditors would be willing to work with you. According to reports, lawmakers have been proposing that debt payments will be postponed during the coronavirus pandemic. Banks, creditors, and lenders are completely aware of what is happening around us. They know that soon, people will be starting the calls to suspend payments.
But if you really don’t think that you have it in you to communicate and negotiate with them, that’s okay. You can get the help of a professional. There are two ways you can do this.
One option is debt management. In this strategy, you will get in touch with a credit counselor and talk to them about your debts. The idea is to come up with a low monthly payment plan. This is called a Debt Management Plan. Even if it’s very low, the credit counselor will just stretch the repayment period over a long time until you pay off the debt. It has to be noted that in this debt solution, your balance will still be the same. The counselor can try to negotiate a lower interest rate or waiving the fees and charges. But other than that, they cannot help you reduce your debt further.
The credit counselor will present this to the creditor for approval. If approved, the credit counselor will also take care of sending the payments to your creditors. Your job will be to make sure the payments are funded.
Debt settlement is a bit like debt management. But this time, you will be working with a debt negotiator who will try to have your actual balance reduced. That means it is not just the interest rate or the fees. They will try to reduce the actual balance by a certain percentage. This is ideal for people who can’t pay debts.
For instance, if you owe $5,000, they will negotiate with the creditor to allow you to pay only $3,000 and have the rest forgiven. The percentage that can be forgiven will vary and can never be guaranteed. But you can be assured that the debt negotiator will get the highest reduction of debt they can get.
Just like in debt management, your main job will be to provide the funds that will pay off the debt. Everything else will be taken care of by the debt negotiator.