These are a few practical steps in an effort to relieve some of your financial stress. It is difficult to negotiate with a creditor who has been ignored. Therefore, it is best for you to run toward creditors, not away from them. Most creditors respond best to specific written requests that are backed by a detailed plan.

You will need to write the creditors a letter (do not telephone them) (see suggested format below) that states the source of your financial problems and explain the sequence of events that has caused the accumulation of debt and put you in the position of future default on your scheduled payments.  You will be asking the creditors to: extend the life of the loans, eliminate late & overage fees and reduce the interest rates. This letter preferably should be sent before you begin to receive reminder letters or phone calls from the creditor.

Accompanying the letter should be a current detailed financial statement that shows the name of all creditors, the amount owed (debt list) to each creditor, and how much each creditor has requested for a monthly payment. You will also be sending a copy of your most recent pay stub, and checking & savings statement to validate your request.

In addition, you will need to send creditors a copy of your adjusted budget (we will complete this during  our coaching session) that reflects a detailed repayment plan and shows each creditor exactly how much that you are able to pay each one of them each month. The letter should ask for their acceptance of the proposal.

If you offer a payment plan that will get the debt paid off in a reasonable amount of time, most creditors will not turn down payment. But, if they do refuse and send your account to a lawyer, repeat the process with the attorney.

Send all correspondence certified mail with return receipt and keep copies. You could send the first payment with the letter. You will not want to send your personal check to a debt collector, so pay by money order instead. Just be sure to keep records of your payment and your payment agreement. Often you will get a favorable response. If not, and they take you to court, you will have a copy of the offer and proof it was received to show to the court that you made a reasonable attempt to pay the debt

Once you have committed yourself in the letter, it is extremely important to stay committed and follow through. Do not renege.

Examples of Letters to creditors:

1.Letter that can be sent PRIOR to arriving at a Plan to Pay:

I am currently seeking the advice of a Financial Counselor, instead of filing bankruptcy, to determine the amount of money that I can pay to each of my creditors per month. My income has decreased since (Month day, Year) due to (list sequence of events that caused the decrease in income) and my expenses have increased due to (list reasons) which has placed me in the position of future default on all of my scheduled payments.  Currently I do not have any money to apply toward my debts after making payment for my necessary expenses.

It is not convenient for me to receive phone calls at home or work regarding this debt and you should only contact me in writing.

When we determine the amount that I am able to pay monthly I will contact you to make an installment agreement, hopefully within 90 days.

Thank you for your help in any way.

2. Letter suggesting Plan to Pay:

I have met with my Financial Counselor (instead of filing bankruptcy) and have prepared the enclosed projected budget. I will be able to pay you $____ per month to retire my debt.  My income has decreased since (Month day, Year) due to (sequence of events that deduced your income) and my expenses have increased due to (list reasons) which has put me in the position of future default on all of my scheduled payments 

I am asking for you to: accept my proposed payment, eliminate late & overage fees and reduce my interest rate.

Attached you will find my first payment of $(____), personal financial statement, list of creditors, recent income validation, bank statements and new projected budget.

Thank you for your help in any way.

Some helpful articles:

Clean up your credit report yourself http://www.crown.org/library/ViewArticle.aspx?ArticleId=351

Dealing with creditors http://www.crown.org/library/ViewArticle.aspx?ArticleId=360

How I Conquered the Debt Mountain http://www.crown.org/LIBRARY/ViewArticle.aspx?ArticleId=618

How to deal with collection agencies http://www.crown.org/LIBRARY/ViewArticle.aspx?ArticleId=766