Doug Stephens, MBA

Doug Stephens is a Dallas Financial Counselor. Clients ask him to negotiate with creditors to reduce balances. He often says, ”What a complete waste of time!”

Negotiating with creditors to reduce balances can be an effective technique. It may provide the breathing room needed to begin the long climb out of debt. For most people that ask me about it, debt negotiation is the last thing that they should be considering. There are other more pressing issues that must be dealt with first.

The number one issue is how did this person get into debt? Are they overspending? Have they had medical expenses? Just what is going on in their financial life? It is important to get to bottom of this issue. We need to make sure that a person can live on what they are making. If lifestyle changes have to made, it is important that these be in place before approaching creditors about reducing balances. Remember, we are asking your creditor to accept less than you owe him. What do you think is the likelihood that this creditor or any other will extend credit to you in the near future? Pretty slim I think. If your spending habits and budget are not in order before this negotiation process begins you might find yourself in a very tight financial squeeze.

Beating down creditors to accept lesser amounts will have a long term adverse effect on your credit score. As a financial counselor I don’t get too excited about credit scores. Higher credit scores just allow some people to go more deeply into debt. From a practical standpoint, however, credit scores come into play in hiring decisions, insurances rates and so on. Any action that will adversely affect your credit score deserves careful thought. It should only be undertaken as a step that will improve your finances. This in turn will eventually improve your credit score.

Common sense tells us that if you can offer a creditor a tangible benefit when negotiating, you are more likely to succeed. For example, if you have old account balances that have been charged off, perhaps a creditor will accept a smaller lump sum as settlement. This means that the budget must be in place and you must have the savings available to make such an offer. Creditors are not very interested in promises from people that have broken past promises. Cash in hand is a different matter. It shows that you are serious about settling this debt.

Credit negotiation is not a panacea. I never recommend it until a client has their monthly budget in order. Even then, most times it is totally unnecessary. With the 7 Baby Steps many people can pay back what they owe and begin building wealth. When people ask me about debt negotiation I often say, “Why bother? Let’s work on a plan that pays off your debts and starts you on the road to Financial Peace.”

Doug Stephens, MBA, is a Dave Ramsey Certified Counselor in Dallas, Texas. He over 30 years experience in personal and small business finance. Doug is a successful real estate investor and often advises clients on buy/sell decisions. Doug feels that everyone can be helped. His goal is to leave no one crushed under a mountain of debt. Everyone deserves a second chance.

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