One of the most unpleasant parts of finance is dealing with creditors, particularly those we cannot afford to pay. Here are five of the most common mistakes people make. If you can avoid them, your negotiation and conversation is likely to go much more smoothly.
- Avoiding the creditor. Although it’s natural to want to avoid people to whom we owe money we cannot pay, this is a mistake. Refusing to talk to creditors, whether it’s refusing to answer the phone, claiming that you have moved, or sending a creditor with a legitimate claim a cease and desist order, backs creditors into a corner which leaves them with very few options, most of them unpleasant for both you and them.
- Refusing to give details. When you speak with your creditors, chances are they are going to ask some probing questions about your employment, expenses, and personal circumstances. Although our first impulse is to resist giving out these details, explaining the situation often convinces creditors to reduce interest rates, reduce minimum payments due, or in some cases settle debts. Indeed, financial guru Dave Ramsey suggests that as people prepare to talk to hospitals about their medical bills, they create a detailed budget of their income and expenses and plan on presenting it to the accounts manager. This communication and honesty will go a long way toward restoring the creditor’s faith in you as an honest person who is in control, and will lead to more a more favorable response.
- Thinking of their creditor as an opponent. We sometimes feel that our creditor is our enemy. After all, they want from us something that we don’t have: money. However, the creditor and the debtor have many goals in common: both you and the creditor want you to avoid bankruptcy. Both of you want to avoid this situation going to court. Both of you want to find a solution that will allow you to make payments you can afford while avoiding (further) delinquency and mistakes. Additionally, the person on the other end of the phone is just that—a person. They don’t want to see you suffer; if you’ve got circumstances that make it difficult for you to meet your financial obligations, chances are good they actively want to help you and relieve some of your burden.
- Playing tough. As a bank officer, my husband sometimes works with people who are behind on their bills and who are violating all of the above rules: they avoid his calls, they treat him as though he’s a personal enemy, and they refuse to discuss the situation with him. Often, they’ll swear, yell, call him names, accuse him of violating their rights, or tell him to simply “do what you have to do.” Obviously, swearing, yelling, and name-calling are not productive. Additionally, unless you have specific knowledge that your rights under the Fair Debt Collection Practices Act are being violated, claiming that the collector is violating your rights is likely to make him or her irritated and less likely to work with you. Finally, telling a collector to “just do what you have to do” is a dangerous move. In many cases, what creditors “have to do” is offset their losses with another account you may have with them, repossess your property, take you to court, and file liens against your home.
- Not following up with the agreements they make. If you avoid the four pitfalls above, you may reach an agreement with your creditor. The agreement may include reduced interest rates, a specific sum that you will pay monthly, and a date on which you will again contact your creditor to reevaluate how much you can afford to repay them. One of the biggest mistakes people make is failing to follow up on these agreements. Doing this makes it seem as though you were simply trying to “dodge” your debt for another month, and your creditor’s faith in you, and therefore their leniency, is likely to be greatly reduced.
Dealing with creditors is never pleasant. However, if you avoid these five common mistakes, your negotiations and conversations will be easier and more productive for both you and your creditor.