There's no guaranteed right to settling your debt, so if you want to negotiate a bank payoff, you'll need to find ways to make your offer appealing to your creditor. It's helpful to know specific information about how your creditor handles debt, such as when they sell it to a debt collector and for how much.
Gather information about the precise amount of the debt. If there's any portion of the debt you dispute, compile evidence validating your position. When the debt is with a bank, you should have a ledger -- such as your account statement -- clearly denoting each transaction, so dispute any that you did not make. Ensure that you have the money on hand to pay the debt settlement you plan to propose. Creditors typically are more willing to negotiate when they know they will be paid right away.
Tell the bank you're considering filing for bankruptcy -- even if you're not. This often encourages a creditor to accept a lower offer in the hope that they'll get paid something. If there are other factors that might cause the creditor not to be paid, note these. For example, if you have no job and your wages can't be garnished or if the debt is nearing the end of the statute of limitations, it can encourage the creditor to settle. Most banks charge off debts after 180 days and sell them to collection agencies. If you're approaching this time limit, you might have more leverage, so even if you've tried negotiating before, call again when you get near the 180-day mark.
Offer something lower than what you're willing to pay. If the debt is still with the bank, you'll likely pay around 50 percent of the outstanding amount, but if the bank has sold the debt to a collection agency, you should pay less -- more like 30 percent. Try starting at 15 to 20 percent so you don't over-offer, then allow the creditor to talk you up. If the creditor refuses to budge, emphasize again your limited funds and the risk of the creditor not being paid at all.
Try discussing your other business with the bank. If you have other accounts with the bank that are in good standing, you might emphasize that you want to keep these accounts open. Some banks are eager to keep your business and more willing to offer a settlement, particularly if you don't have a history of going into debt. However, be careful, because if your accounts are linked to one another, the bank could take money from one account to pay off your debt.
Take advantage of the Fair Debt Collection Practices Act. If you are dealing with a third-party collection agency acting on behalf of the bank, the law can serve as a negotiating tool. This law mandates, among other things, that the debtor must not threaten you, use obscene language, excessively call you or tell you it plans to sue when it does not. Debt collectors must also not try to collect debts that they know you do not owe. If a creditor violates the law, point it out to them and tell them you'd like to settle so you don't have to continue dealing with them and so they don't have to risk being sued for violating the law.
The deal you can get is partially dependent on the creditor. If you're dealing with the bank, you'll typically have to pay more than if you're dealing with a third-party collection company that's working on behalf of the bank.
Some banks have special departments dedicated to keeping customers and negotiating debt challenges. When you call, ensure you're talking to someone who can help you, not just the first customer service representative you encounter. Ask instead to talk to someone who works with debtors or someone in the account retention department.
Settling your debt is better for your credit than never paying it at all, but agreeing to pay less than the amount you owe can harm your credit. Only use this strategy if you have no other option.
Van Thompson is an attorney and writer. A former martial arts instructor, he holds bachelor's degrees in music and computer science from Westchester University, and a juris doctor from Georgia State University. He is the recipient of numerous writing awards, including a 2009 CALI Legal Writing Award.