Negotiating Your Debts.

If you're in a really bad situation, and you just can't even make your minimum payments this month, don't worry. You can negotiate your debts, and pay back much less than you owe - as long as they get their debt plus interest in the end, no-one is expecting you to pay the full amount when you just can't afford to.

Settling your debts takes a lot of time, and many people find it intimidating. If you do it right, though, you'll be surprised at how kind your creditors (that is, the people you owe money to) can be.

Close My Account.

It might feel bad, but if you can't afford to pay that credit card, you'll have to close the account - that means you can't borrow any more money with that card. To close the account, you'll have to negotiate something called a 'payment plan'.

A payment plan turns your credit card debt into a plain old loan. The company might take as much as 50% off the amount that you need to pay back. It might seem strange, but they're happy you're paying at all - there are plenty of people who just don't pay and have to be chased, costing their creditors time and money. They'd rather hear from you if you're having trouble, so don't bury your head in the sand.

It's in your creditors' best interest to take whatever you can offer them, within reason. Their alternatives are lengthy court proceedings, or paying collection agencies to come round and intimidate you. They know that your offer will probably be the only offer you make before you do something more extreme that could result in them never getting any money back.

Do It in a Letter.

Phoning companies to ask to negotiate your debts isn't a good idea - it's too easy to get flustered and say the wrong thing. They're professional negotiators, and you're not. You need the advantage of having time to think, which is why you should always negotiate with them by post. Getting it in writing also means that you can hold them to what they say later on. Here's a sample letter:

"Dear Sir or Madam,

I regret to inform you that I can no longer afford to make my minimum payments of $100 per month on my credit card account with you (account number 111-222-333). I would like to request the closure of my account, followed by the settlement of the debt on a monthly payment plan. Please advise what kind of terms I could expect from such a plan.

Yours faithfully - "

The Damage to Your Credit Report.

You will rarely be able to negotiate over your debts without doing some damage to your credit report. If you're willing to pay a bigger percentage of the debt, though, you might be able to persuade the creditor to say that it was paid off to their satisfaction, instead of recording that they accepted less than they wanted. It's up to you just how much you feel your credit report is worth - if you're planning on getting a big loan anytime soon, this could be something to consider.