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Generally negotiations with creditors occur on the phone. If they are in person, the same principles apply. 

Consider the following steps before speaking with a creditor. Each step is more fully described in other sections of this article.

Step 1. Determine your objective about each creditor.
Step 2. Think about what to say to convince the creditor to say "yes."
Step 3. Think about how to tell your story and make your request.   
Step 4. Be prepared for not reaching an agreement with a creditor.   

When you make the call, speak with a decision maker, stay on point, be flexible. Get the agreement in writing.

If the creditor says "no," wait a while and try again -- especially if there are new facts such as other creditors agreeing to your proposal.

When you reach agreement, get it in writing. Stick to your agreement.

If negotiating is not one of your skills, ask a friend or family member who is good at it do to it for you. Or your attorney if you have one.

If you would prefer, there are professional credit counseling services available.

Step 1. Determine your objective about each creditor.

If you haven't already, read: How To Deal With A Financial Crunch.

Start with the creditors that are most important to you.

Create a realistic goal. Most companies are not going to accept a $1 payment per month on a $5,000 balance

Step 2. Think about what to say to convince the creditor to say "yes."

Use your budget to help negotiate. Your budget will let you tell creditors how much you can reasonably afford -- and what you can't afford.

Think about how long you've done business with each creditor and how your history has been with them. The longer the history, and the better the relationship, the more likely you'll get favorable treatment.

Decide how much you're willing to tell the creditor about your health condition and the consequences. You may owe money to a large multi-national corporation, but you will be speaking with another human being.

Do some homework. For instance, before you ask for a reduction in the rate on your credit card, check to determine current credit card rates. See www.bankrate.com , www.cardratings.com and www.cardweb.com

Step 3. Think about how to tell your story and make your request.

• Be honest and open. A large part of a creditor's willingness to work with you will be whether the creditor believes you will honor your agreement.
• Be polite. Creditors are used to dealing with angry, defensive people. You are more likely to get what you want if you are courteous.
• Be flexible.
• Don't be pressured into paying more than you can afford -- or favoring one creditor over another.
• Don't let the conversation get to you. Customer service people are likely to be pleasant. If you get a person in the collection's department, they may not be as pleasant. Remember these people hear a lot of untruths from a lot of people.
• Avoid words like "in all honesty" or "to tell the truth." They may sound well meaning, but they can also indicate you're not being honest the rest of the time.

Be near a fax machine in case you need to send papers to the creditor.

Step 4. Be prepared for the unexpected.

For example.

• "I can't put you through to my supervisor (the decision maker.) There is no one here." -- There doesn't seem to be such a thing as a call center without a supervisor. If nothing else, they're there to make sure the people are actually working.
• "We don't do that. It's against the rules." Rules are made by people, and can be changed by people. You just have to speak with someone with enough authority to do it. An easy response: "Even if it means losing me? I received an offer in the mail for no interest for __ days."
• Don't be surprised if the creditor asks to know your complete financial situation before it will accept changes -- particularly if you are asking for a big change such as a major reduction in the amount of the debt.

Speak with a decision maker: If the person who answers is not a decision maker: explain that you are behind in your payments, that you have a proposal to make, and that you have been advised to only speak with a person who has authority to make a substantive decision -- which you assume is a supervisor. If your situation has to be repeated by someone else to the decision maker: you will be a story rather than a person, you will not be sure that the points that you want to emphasize will be emphasized, or what additional points the reporter will tell to the decision maker.

Find out with whom you're speaking: First get the person's name and direct number if possible, and any other information they are willing to give you. Write the information down.

Explain the situation, without going into unnecessary detail. (Consider rehearsing what you want to say before you make the call.) Unless there's a solid reason not to, tell the creditor about your health condition, how it resulted in a reduction in your income, and unexpected increases in your expenses. Consider offering to send a copy of a letter from your doctor describing the generalities of your condition on the understanding that they will keep the information confidential. (So the creditor will know you're telling the truth.) The sympathy factor alone might make them more agreeable. Also, consider mentioning -- in a non-threatening manner -- that you are thinking about filing for bankruptcy (which would wipe out the debt entirely.) If you have a good payment history with the company, mention that as well.

Explain the situation in a manner that indicates that you are a prudent person, but that events overtook you.

Don't ask what the creditor will accept. Instead, let the creditor know you have a realistic plan to propose that will allow you to keep your account current while taking care of the other aspects of your life.

Be specific in your proposal. See above.

If the creditor says "no": Ask what it would accept. If the creditor continues to say no, see the next section below.

Once the monetary discussion is resolved:

• Ask for a change in your credit report. Ask that the creditor change the notation in your credit report with all three major credit bureaus to show that once you make payment, all mention of prior delinquency will be removed and it will show that you are up to date.
• Don't make any payment until you get a signed agreement. Let the person with whom you reach an agreement know that you are not making any payment until the agreement is reduced to writing and they sign it. You can prepare the letter. (See "When You Reach An Agreement" below).
• Make notes. Either during the conversation, or immediately after you hang up, make notes about the conversation, including with whom you spoke, a direct phone number, what was said, and what was agreed to.

If you cannot reach agreement with a creditor, try again in another week or so. If the creditor is large enough, you may get to speak with another decision maker.

Even if you get the same person you spoke with last time, ask the creditor to reconsider. If you can, come up with additional facts that were not mentioned during the first discussion. For instance, list other creditors who have agreed to a proposal since the initial conversation.

You have rights to stop them if a creditor harasses you. For more information, click here. 

Write a letter to the creditor by certified mail, return receipt requested, confirming your agreement. Keep a copy for your records. A sample letter that may be useful follows. Don't make the agreed payment until you receive the executed document.

Once you have an agreement with one creditor, you can then use that agreement when you speak with other creditors. No one likes to feel alone, and many people don't like to be the first to agree to something. However, if they believe that others have already agreed, and that if they do not agree they may have to wait a very long time to get their money, if at all, they are more likely to agree to your request.

Revise your budget so you can see what is left to work with.

If you haven't received a signed agreement within one week of sending it, call your contact person and ask what is the reason for the delay. Remind her that you are waiting to satisfy your side of the agreement, but need the signed agreement. Follow-up every week until the matter is resolved.

Stick to the agreement. If you can't make a payment, let them know beforehand --- they will be more likely to continue to be flexible.