Debt negotiation

Negotiating a payment arrangement now could help you avoid much more serious financial trouble in the future.

We’re reader-supported and may be paid when you visit links to partner sites. We don’t compare all products in the market, but we’re working on it!

If you’re experiencing serious financial trouble and struggling to repay debt, you might be at the point where you think that filing for bankruptcy is the only possible solution.

However, debt negotiation is an important strategy that could help you avoid bankruptcy. By negotiating a suitable payment arrangement with your creditors, you may be able to reduce and eliminate debt without suffering the severe financial consequences of being declared bankrupt.

So what does debt negotiation do? Read on.

What is debt negotiation?

Debt negotiation allows you to take control of a debt you are struggling to repay. By contacting your credit provider and working together to reach a mutually agreeable arrangement for you to repay an outstanding debt, you can remove the financial pressure and stress associated with owing money.

If the lender is willing to negotiate, you may be able to agree to repay a lump sum amount that is lower than the amount you currently owe. If this is accepted by the lender as full payment of the debt, the debt will then be considered settled.

Rates last updated June 15th, 2021
Fox Symes Debt Solutions Fox Symes Debt Solutions Fox Symes offers a range of debt consolidation options to help you if you're struggling with multiple debts. Enquire now

How does debt negotiation work?

Debt negotiation is only possible if your credit provider is willing and able to accept a revised payment arrangement. The aim for the borrower is to settle their debt, usually by making a lump sum payment that is less than the total amount owed.

Credit providers are experienced at negotiating payment arrangements with borrowers who are experiencing financial difficulty. However, as this process is most likely new and intimidating to you, it may be wise to enlist the help of an experienced debt negotiator.

Professional debt negotiators are experts at negotiating with creditors on your behalf and can help take the emotion and stress out of the situation. Experienced negotiators will also have good relationships with credit providers and may also be able to help secure a better deal than you would get on your own.

Debt negotiation can be a lengthy process, so don’t expect to reach an agreement with the creditor immediately. Instead, there is usually a significant amount of discussion before coming to an acceptable arrangement.

Debt negotiation options

The aim of debt negotiation is to pay off your debt. With this in mind, the most common arrangement is for the borrower to make a reduced offer to settle the debt by paying a lump sum that is less than the total amount owed.

However, depending on your circumstances, there are a variety of arrangements you may be able to propose to your creditor, such as:

  • Requesting additional time to pay the debt if your financial hardship will only be for a short-term period.
  • If you cannot fully repay the debt, you may wish to make a reduced payment to demonstrate your good intentions and your desire to repay the debt in full.
  • If you’re experiencing ongoing financial hardship, you may need to set up a formal agreement that stipulates you make ongoing reduced payments towards your debt.
  • Negotiating to have interest on your debt waived (most creditors will refuse this proposal).
  • If you can demonstrate that you have no ability to repay the debt now or anytime in the foreseeable future, you can ask to have the debt waived.

Whether or not the offer is accepted will vary depending on the creditor and on the state of your personal finances.

The benefits of debt negotiation

Debt negotiation has a number of advantages for you and your creditor. For you, debt negotiation:

  • Allows you to settle your debt.
  • Can save you money.
  • Can help you avoid bankruptcy.
  • Reduces financial stress.

For creditors, debt negotiation:

  • Lets them receive a lump sum payment now rather than having to spend years chasing the money they are owed.
  • Helps them make a profit on their credit arrangement with you.

Remember: the debt you owe will probably be a profit to your credit provider. The principal amount you initially borrowed in the past is most likely paid off, so any lump sum payment you can make will represent a profit to the lender – which is why they’re willing to negotiate.

Debt negotiation tips

Struggling to make repayments and considering debt negotiation? Keep the following tips in mind to ensure that the process runs as smoothly as possible:

  • Take action. Don’t wait for the overdue notices and late fees to pile up before taking action. Contact your creditor as soon as possible to let them know you are experiencing financial hardship and may need to consider alternative payment arrangements.
  • Ask for a credit hardship variation. If your credit provider is regulated by consumer credit laws, ask them for a formal credit hardship variation. This could allow you to secure more suitable loan terms.
  • Consider professional debt negotiators. Debt negotiation can be a complex and daunting process, so consider engaging a professional debt negotiator to help you agree on favourable terms.
  • Get help managing your finances. If you’re struggling to manage multiple debts, consider getting independent advice from a financial counsellor. Free financial counselling is available via the National Debt Helpline (1800 007 007).

Debt negotiation can offer a satisfactory solution for borrowers and creditors, but it’s important to carefully consider all your options before deciding whether it’s the right approach for you.
Picture: Shutterstock

More guides on Finder

  • Zip Business Trade Plus

    Zip's Business Trade Plus service allows you to split the cost of your business expenses up to $150K over four4 monthly instalments, without having to pay anything for the first 60 days, for a 3% fee. Find out more here.

  • RelayPay cryptocurrency card and app

    FInd out about how RelayPay works, what cryptos and fiat currencies it supports, the fees for using it and safety information.

  • Great Southern Bank Fixed Rate Car Loan

    If you’re in the market for a new car, the Great Southern Bank Fixed Rate Car Loan may be able to give you the funds you need. With the security of a fixed rate and flexible repayments, this loan might be what you need to own your new set of wheels.

  • Great Southern Bank Variable Rate Personal Loan

    With a Variable Rate Personal Loan from Great Southern Bank you get simplicity matched with the opportunity to save yourself hundreds of dollars in interest fees. The flexibility in repayments that this loan gives you makes it easy to keep up with and pay it off without incurring extra fees.

  • Payday loans with no credit checks

    These lenders won't complete a credit check when people apply for a loan, but there are other eligibility requirements that applicants must meet. Learn more here.

  • Emergency Loans For Single Mothers

    Emergency loans for single mothers are personal loans that are processed quicker than usual loans to give fast access to funds. Our guide explains the pros and cons of emergency short term loans.

  • Business car loans

    If you're after a business car, compare your vehicle finance and car loan options and get your business on the road.

  • The expenses preventing Aussie households from saving

    Food, utility bills and eating out are the top expenses preventing Australians from building wealth. Find out how to boost your income and cut your expenses.

  • Investment property tax deductions

    Investment property tax deductions can be worth thousands of dollars – don't pay tax when you don't need to! Brush up on all the claims you're eligible for.

  • CommBank Neo Business Interest-Free Card

    This no interest, flat-fee credit card gives you a way to manage your business spending with predictable costs.

Personal Loan Offers

Important Information*
Logo for Harmoney Unsecured Personal Loan
Harmoney Unsecured Personal Loan

You'll receive a fixed rate between 5.35% p.a. and based on your risk profile.
Apply for a loan up to $50,000 and repay your loan over 3 or 5 years terms.

Logo for ANZ Fixed Rate Personal Loan
ANZ Fixed Rate Personal Loan

You'll receive a fixed rate of 8.99% p.a.
Apply for up to $50,000 to use for a variety of purposes without needing to add security. Available to self-employed applicants.

Logo for NAB Personal Loan Unsecured Fixed
NAB Personal Loan Unsecured Fixed

You'll receive a fixed rate between 6.99% p.a. and 18.99% p.a. ( 7.91% p.a. to 19.83% p.a. comparison rate) based on your risk profile
An unsecured loan up to $55,000 you can use for a range of purposes and pay off over up to 7 years. Note: Majority of customers will get the headline rate of 12.69% p.a. (13.56% p.a. comparison rate) or less. See Comparison rate warning in (i) above.

Logo for SocietyOne Unsecured Personal Loan
SocietyOne Unsecured Personal Loan

You'll receive a fixed rate between 6.99% p.a. and 20.49% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Go to site