A: Yes, you definitely can – don’t feel intimidated by creditors; you have the right to negotiate with them if you anticipate that you will be having trouble repaying your debt. Plus, being proactive will count in your favour.
Before getting everything ready for your negotiations, take the following into account:
- Each creditor will want as much as possible. So you will have to show them that you truly only have a certain amount available and that your offer is reasonable considering your financial situation.
- Most creditors will not be able to accept a pro rata amount on certain accounts (like a vehicle loan or home loan) and may require more than the pro rata amount in order for them to justify that you keep that asset.
- Each creditor will have to be approached individually.
What you need before approaching your creditors:
- A written motivation describing how your financial situation has changed, leaving you in a position where it is necessary to make new arrangements on your credit agreements. Also, add how you have tried your best to keep up with the payments by cutting out unnecessary costs.
- A comprehensive budget that shows your cash flow exactly. On this budget, you need to show what money is coming in, and what all your expenses are (debt repayments, service agreements and essential living costs).
- Calculate how much you can pay each creditor. During this calculation, you will need to prioritise the most critical accounts (like your home loan, car loan, rent etc.)
- Decide for how long you will need leniency on your payments (remember, negotiating for a better repayment plan is only a temporary arrangement, like a few months, and not an option long-term)
- Compile a repayment plan that specifies how much you propose to pay during the leniency period, and how you plan to catch up with the payments after the leniency period is done.
When you have the above in order you can draft a proposal for each creditor. Your proposal will contain your motivation, your calculations for that specific creditor and your proposed repayment plan for that specific creditor. Then, make an appointment with each creditor and present your case, point for point.
As mentioned above, this arrangement with your creditors is only a short-term solution, your creditors will not agree to a long-term repayment adjustment. So if you see that you will need reduced instalments for the foreseeable future you should consider Debt Review which will most likely be a better debt solution.
Learning how to negotiate with your creditors, budgeting, or how to manoeuvre through a cash flow crisis is all part of building healthy financial habits, which will develop the skills you need to accomplish financial freedom.
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