What to tell your creditor when you can't make payments

An emergency has cropped up and you can't make your credit card payments -- and you've already missed a few. Banks and creditors are sending you letters, and you fear nasty phone calls may come next. It's time to call them to explain that you're in financial trouble.

That's not an easy task for most people. Experts say consumers tend to ignore their debt when they can't pay it back.

"There's a big procrastination factor and the concern is about receiving an angry response or being humiliated," says Nadia Graham, a Calgary-based credit counsellor with the national Credit Counselling Society.

"They cease communication with creditors, they avoid phone calls, and they're not being preemptive and contacting their creditors," says Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada. "It's a head-in-the-sand approach. You're terrified, but you're delaying the inevitable."can't-pay

However, there is a way to mend fences with your creditors, Schwartz and Graham say. Being transparent with them is critical, but you'll
first want to do some prep work.

First step: Face the music
Contacting your creditors may be nerve-wracking, but if you go into
the conversation prepared to answer any of their questions, you
should be OK.

Open all your credit card and bank statements and count the number of payments you've either missed or could miss in the near future.
Then add up your outstanding debt, including interest and any late payment penalties.

"We do this all the time [with our clients]," Schwartz says. "When people send in statements to us, they could be opening them up for the first time, too, to get an accurate look at their debts they've been accumulating for months or years."

When you have a realistic picture of your situation, decide what you'll be asking for: a lower interest rate, waived penalty fees in exchange for an interest hike, a different due date, lower minimum payments?

"Consumers need to understand that a dialogue takes two people and they have rights, too," Schwartz says. "You can ask for things that may be outside your agreement and it's up to your creditor to decide if that's how it wants to go. The worst they can say is no."

For instance, he says, you can say, "I'm going to start making payments, but I don't want to be burdened by additional fees and penalties." "You can ask for a fresh start so your account is up to date and your credit score won't take a beating," Schwartz says.

If you're a longtime client typically in good standing, your creditor may be lenient. More often than not, they don't want an uphill climb for you.

Have a concrete plan carved out, such as a balanced budget, a plan for how you'll make up for the missed payments and a timeline that shows how long it will take.

Practice your explanation before you call. Schwartz offers an example script: "I'm a longtime and valued client. Right now, I'm experiencing a setback and it's my goal to get back on track but at this rate, I'm not going to be able to do so. I want to make sure I'm whole and honest with you. Is there something you can do on a temporary basis to help me?"

Present your solution as your ideal option, with your plan to prove that it's feasible.

"By the time you pick up the phone, you'll have your goals set in mind and you're prepared to answer questions," Graham says.

Set up an appointment in person at your bank or call the number on the back of your  card. If you call, make sure you record the customer service representative's name, along with the date and time of your call.

It's also wise to jot down notes as you talk. The person you first reach may not have the authority to help you, and you may have to go up the chain and explain your case again.

Or, the customer care agent may be reluctant to help you. That's OK, too. Just regroup and try again in a few days or a week, Schwartz says.

Finally, stay calm, regardless of the outcome. "It's a challenging call to make and emotions can get the better of us but you need to be in a position where you can have a meaningful, productive conversation," Schwartz says.

Know what to expect
You may have to wait a while to see what your creditor decides. Experts say the decision often depends on the level of concessions you're asking the lender to make along with how responsible you were before you fell off track.

How your debt is broken up is a factor, too. If you owe five different institutions, it may be difficult to get one creditor to agree to consolidate the debt into one loan, Graham says, but it may be easier if you simply have one maxed-out BMO credit card and a BMO line of credit.

In any case, you will probably receive some assistance. "Most creditors have the ability to defer at least one payment, if not more," Graham says. "They could put you on a hardship program, eliminate interest or minimize payments for a period of time until you're back on your feet."

If you have assets, that may help your case. Graham says banks may grant you a second mortgage or line of credit, backed by your house or vehicle as collateral.

If none of your efforts work, Schwartz says external help, such as credit counselling, may be the next step.

The key to talking with your creditors is giving them a solid reason that you're struggling with bills, and talking to them in a timely manner.

"If you avoid them, you're digging a bigger hole," Schwartz says. "Say, ‘I know what's on the horizon and I might be in a situation where I might have trouble making payments. I want to make an arrangement so I don't catch you off guard.' It doesn't matter what happened. It depends on how you handle the incident when it comes your way."

See related: In an emergency, what comes first: savings or credit?, 7 tips for staying out of debt when unemployed
Published December 2, 2015

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