How to Negotiate with Creditors to Pay Off Your Unsecured Debt

Unsecured debt is something we can all relate to. Whether it’s medical bills, credit cards, student loans, or even streaming subscriptions, we all have something to pay. It’s easy to fall behind, especially if a surprise like COVID-19 comes along.

Negotiating with creditors is not a desirable task, but in many cases, it is a necessary one. Here, we’ll describe precisely what unsecured debt is and some tips on negotiating with creditors to pay it off.

What is Unsecured Debt?

There are two types of debt: unsecured debt and secured debt. Unsecured debt needs no security, meaning it requires no collateral backing. It is based solely on a borrower’s creditworthiness. This type of debt typically has higher interest rates than secured debt, which is backed by some kind of asset as collateral for the loan. 

Many unsecured loans have stricter credit score and debt-to-income requirements than secured ones. Because of the high risk of default, lenders have more requirements and often higher interest rates for eligible borrowers.

Unsecured debt can include anything from medical bills, student loans, and credit card balances. If the borrower enters default, the lender must take legal action to collect the remaining balance.

Unsecured Debt…

• Has no collateral backing
• Is based only on the borrower’s creditworthiness
• Has stricter credit score and debt-to-income requirements
• Typically has a higher interest rate 
• In the event of a default, legal action must be taken to collect the remaining balance

Examples include medical bills, student loans, credit cards, streaming subscriptions, gym memberships

What is Secured Debt?

As mentioned above, secured debt is backed by an asset for collateral. If the borrower goes into default, the lender can use the asset to pay off the remaining loan balance. 

Auto loans and mortgages are typical examples of secured debt. In these cases, the property being financed is the asset put up for collateral. 

Secured Debt…

• Has collateral backing from some type of asset or property
• Has a lower risk of default 
• Typically has a lower interest rate
• In the event of a default, the property or asset is [repossessed] by the lender to pay off the remaining loan balance.

To learn more about unsecured debt vs. secured, visit here.

How to Negotiate with Creditors to Pay Off Your Unsecured Debt

1. Be Ready – Before talking to a creditor, have a 2-3 sentence summary prepared about your situation. Keep drama out of it and simply provide the facts. 

2. Take Notes – Arguably the most essential part of any discussion with creditors, taking notes is crucial in keeping an accurate record. 

3. Ask Questions – Don’t be afraid to get the specifics. 

4. Save Your Mail – Keep all official documentation for reference.

5. Know Your Budget – Before talking to creditors, go through your finances and figure out what you can afford to pay. 

6. Get It in Writing  – Once you reach an agreement, get it in writing. Otherwise, the creditor can change the terms, and there is nothing you can do about it.

7. Get Help – Financial advisors and bankruptcy attorneys routinely deal with creditors and keep them from bullying you. If you are having financial issues, consider a financial advisor or bankruptcy attorney to fight for you.

Is a Bankruptcy Attorney Right for Me? 

Negotiating finances isn’t easy, and it certainly isn’t fun, but at Schottler Law, our experienced bankruptcy attorneys are ready to help you with all your financial needs and goals. We know how to handle creditors and collectors. If you’re in the Chicago, IL area, and you’re struggling to pay off unsecured debt, contact us to get your free consultation or learn more here!