Can I Negotiate Lower Payments With My Creditors?
If your monthly debt repayments have become unaffordable, you may be wondering whether you can simply contact your creditors and ask them to accept lower payments. In some circumstances, you can. Banks and other credit providers may be willing to consider reduced instalments, extended repayment periods, temporary payment arrangements or other solutions when a customer is experiencing financial difficulty. The important question, however, is not simply whether a creditor will accept a lower payment. It is whether the new arrangement will actually make your overall financial position affordable.
Can I Negotiate Lower Payments With My Creditors?
Yes. You can approach your creditors and ask whether they are willing to reconsider your existing payment arrangements. This is generally easier if you act early. If your circumstances have changed because of reduced income, retrenchment, increased living costs or another financial setback, contact your creditors before simply stopping payment.
Depending on the creditor and the type of debt, possible arrangements may include:
reducing the monthly instalment;
extending the repayment period;
temporarily reducing payments;
arranging payment of arrears over time; or
considering another restructuring option offered by the creditor.
The creditor is not necessarily required to accept the arrangement you propose. You therefore need to establish what assistance is actually available for your particular account.
Start With What You Can Actually Afford
Before contacting creditors, work out what you can realistically afford to pay. Start with your monthly income and essential living expenses. Then list every debt repayment.
This should include:
home loan or rent;
vehicle finance;
personal loans;
credit cards;
overdrafts;
store accounts; and
any other monthly debt commitments.
The amount remaining after reasonable household expenses is what you realistically have available for debt. This calculation is important because negotiating each account individually without looking at the complete picture can simply move the financial pressure from one creditor to another.
Lower Payments Do Not Always Mean Less Debt
A lower monthly instalment can provide immediate relief, but you need to understand how the arrangement affects the debt over the longer term. If the repayment period is extended, for example, you may pay a smaller amount each month but continue paying the debt for longer. Interest may also continue to accrue. A temporary reduced payment may solve a short-term problem if you expect your income to recover. It may not solve a permanent affordability problem.
Before accepting an arrangement, establish:
what the new monthly payment will be;
how long the arrangement will last;
whether the repayment term is being extended;
whether interest and charges will continue;
what happens to existing arrears; and
what happens when the temporary arrangement ends.
The objective should be to create a payment structure you can actually maintain.
Should I Negotiate With Every Creditor?
Not necessarily.
This is where looking at your complete financial position becomes important. If you have one or two accounts that have temporarily become difficult to manage, negotiating directly with those creditors may be enough. If almost every account is unaffordable, negotiating separately with ten different creditors may not solve the underlying problem. You may obtain a reduction from one creditor but still not have enough money to pay the others.
The question should therefore be: If all of the proposed arrangements are put together, can I afford the total monthly payment? If the answer is still no, another strategy may be necessary.
Look at Your Financed Vehicles
Vehicle finance is often one of the largest monthly expenses in a household budget. If you have two financed vehicles, for example, reducing a few smaller credit-card or personal-loan payments may make very little difference if the vehicle instalments continue consuming a substantial portion of your income. Speak to the finance provider about the options available on the vehicle.
Depending on your circumstances, this could include restructuring the account, selling the vehicle with the finance provider's cooperation or voluntarily surrendering the vehicle where keeping it is no longer affordable. If the vehicle is sold for less than the outstanding finance balance, there may still be a shortfall to deal with.
However, removing a large monthly vehicle instalment can sometimes make the remaining household debt considerably more manageable. The decision should be based on the overall financial effect, not simply on keeping the vehicle at any cost.
What About My Home Loan?
If your home loan is becoming unaffordable, contact the bank as early as possible. Ask what financial-distress or assisted-sale options are available. Where the problem is temporary, the bank may have options that allow you time to recover financially.
Where the home is permanently unaffordable, an assisted or quick-sale process may be preferable to allowing the arrears to continue increasing until enforcement becomes unavoidable.
Selling a property does not necessarily mean that the bond will be settled in full. The expected selling price, outstanding bond, municipal account, levies and selling costs should all be considered before deciding whether a sale will resolve the debt or leave a shortfall. Again, the purpose is to understand the numbers before making the decision.
Get Any New Payment Arrangement in Writing
Do not rely only on a telephone conversation. If a creditor agrees to a reduced instalment or another payment arrangement, ask for written confirmation.
The agreement should make it clear:
how much you must pay;
when payments must be made;
how long the arrangement applies;
how arrears will be dealt with;
whether interest and charges continue;
what happens if you miss a payment; and
whether any collection or legal action will continue while you comply with the arrangement.
This last point is particularly important. Do not assume that making a smaller payment automatically prevents a creditor from continuing with collection or legal proceedings. Understand exactly what the creditor has agreed to.
What If Legal Action Has Already Started?
Do not ignore legal documents because you are discussing a payment arrangement with the creditor.
A letter of demand, Section 129 notice, summons or other legal document may have important deadlines. If legal proceedings have already commenced, establish whether the creditor has agreed in writing to suspend or postpone those proceedings while you comply with the payment arrangement. Simply making payments does not necessarily mean that legal action has stopped. The earlier you deal with the problem, the more options you are likely to have.
What If My Creditors Will Not Reduce My Payments Enough?
This is the point where you need to distinguish between a payment problem and a debt problem. If your income is sufficient to repay your debts but the existing instalments are temporarily too high, restructuring or creditor negotiations may solve the problem. If your income is no longer sufficient to service the debt even after realistic reductions, repeatedly renegotiating payments may simply delay the inevitable. At that stage, the complete debt position needs to be assessed.
The solution may involve reducing financed debt, selling or surrendering unaffordable assets, restructuring the remaining debt or considering a formal debt solution where necessary.
Does This Mean I Should Apply for Debt Review?
Not automatically. Debt Review is one possible solution for an over-indebted consumer, but it should not be treated as the only response to financial difficulty. Before entering a formal process, it is useful to understand whether your financial position can be corrected through practical changes.
For example, selling or surrendering an unaffordable vehicle may reduce your monthly commitments sufficiently for you to manage the remaining debt yourself. A creditor may agree to restructure another account. Your circumstances may also involve a temporary income reduction that is likely to improve. If these measures create a genuinely affordable monthly position, a more formal debt solution may not be necessary. If they do not, then the remaining options can be assessed.
When Should I Consider Sequestration?
Sequestration is generally not the first step simply because monthly debt payments have become difficult. It becomes relevant where the debt itself has become unsustainable and restructuring will not realistically solve the problem.
This can happen where there are substantial personal loans, credit cards, overdrafts, vehicle or property shortfalls and other unsecured debts that cannot reasonably be repaid from the available income. Whether sequestration is appropriate depends on the person's total debt, income, assets and individual circumstances. A proper assessment should therefore be completed before deciding on this route.
The Goal Is Not Simply a Lower Payment
A lower instalment can feel like a solution because it provides immediate breathing room. But the real objective is different. You need a financial position that is sustainable every month.
If negotiating with creditors reduces your monthly commitments to an amount you can comfortably maintain while meeting normal household expenses, it may be an effective solution. If the numbers still do not work after those reductions, continuing to negotiate individual accounts may only postpone a larger problem. That is when it becomes important to look at the complete financial position rather than each creditor separately.
Find Out Which Debt Solution Is Sustainable
If your debt repayments have become unaffordable, Solvendi can assess your income, household expenses, financed assets and outstanding debts to determine where the financial pressure is coming from.
The first objective is to establish whether your position can be corrected through practical measures such as creditor arrangements or reducing expensive financed debt. Where those measures are not sufficient, we can explain the other debt solutions available and what each would mean for your circumstances.
Contact Solvendi for a confidential assessment of your financial position and a clear explanation of the options available.
Disclaimer: This article is intended for general informational purposes only and should not be regarded as legal or financial advice. The appropriate debt solution will depend on your income, expenses, assets, liabilities and individual circumstances. Professional advice should be obtained regarding your particular financial position.
Contact us to discuss your current situation and receive a free detailed assessment of how the process works and what your costs will be. We have legal experts with 20 years experience that can guide you through the process. Our main aim is to be as informative as possible. Let's Chat.
If you require advice with regards to Sequestration, Business Liquidations, Insolvency, Bankruptcy or Credit Rehabilitation kindly contact SOLVENDI as follows:
National: 087 220 0710
Head Office: 010 880 7589
Email: consultations@solvendi.co.za
Website: www.solvendi.co.za
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