Having multiple debts is not great to begin with. But it gets worse when circumstances put you in a position where you are unable to repay them – an unexpected event like a job loss, a medical emergency or one big expense can suddenly make it difficult to make ends meet.
If you find yourself in a situation where repayment of debts is becoming unmanageable, what do you do?
Fortunately there are solutions to help. To start with, you can negotiate your repayment structure with your bank. It may seem intimidating to approach your bank with this request. However, from the bank’s perspective, it’s better for them to help you and settle the amount with you rather than have you default on your payments. The process of negotiating with your bank may take multiple phone calls, visits and paperwork, but it’s important to deal with it proactively. Taking action now can save you a lot of stress and money in the long run.
Here are the steps you can take for better negotiation:
Step 1: Get organized
Take some time, gather all the paperwork related to your current debts – Agreements, payment history, late payment notices and penalties. If you’re missing any documents, you can get a copy from your online account or by requesting the bank. This helps you stay focused, and be fully prepared for your conversation with the bank.
Figure out just how much you can afford to pay each month by drawing up a sheet listing your income, expenses and bills. Mentally hold on to the figure you can realistically afford to allocate towards debt repayments per month. While you may want to agree to pay off a difficult debt as quickly as possible, doing so may put you in more trouble, if these repayments come in the way of you being able to afford necessities.
If you have multiple debts you need to pay, you have more planning to do. You’ll have to look into either consolidating all your debts into one or prioritizing which loan you can pay off first.
Finally, be sure to assess how your choices can impact your credit rating.
[Related: 3 common debt traps and how to avoid them…]
Step 2: Speak to your bank before you miss a payment
You may initially be told that there is no possibility of changing the terms of your repayments. Being honest about your situation may work in your favor. Explain that you cannot afford the regular payments. Briefly describe the reasons why. Next, ask the bank how they can help you – Can they lengthen the loan tenure, thereby reducing monthly burdens? Or can they reduce the interest rate?
Sometimes, if you offer to pay a lump sum, the bank may even be willing to accept less than what is totally owed. But remember, this will show up on your credit report, and may impact your ability to access new lines of credit in the future.
Another area for negotiation – requesting a waiver on any late payment fees that you may have accrued.
Whatever be the case, ensure that you don’t agree to make a payment which is higher than what you can afford. Also, remember to take notes during your meetings and save any email correspondences.
Step 3: Follow up
Already spoken to the bank? They’ve agreed to help you out? That’s great. Be sure to follow up regularly. Request that your new terms and conditions be put into effect before the next payment hits, so that you can get a handle on your finances as soon as possible.
Step 4: Get it in writing
When you come to an agreement with your bank, be sure to get it in writing. Ask for a copy of the new agreement, and when you do get it in hand, review the document carefully.
If any new terms have been added or left out, other than what you agreed to, get in touch with your bank and ask for an updated version.
[Related: How can you pay off your loans faster?]
Step 5: Check your credit report
As you start getting back on track with your payments, get a copy of your credit report regularly to see where you stand.
If you have many loans, or are feeling out of depth in negotiating directly with your bank, consider consulting a credit counselor or lawyer. Some options in the UAE are:
However ensure that you don’t end up paying high fees, or agreeing to be locked up in a payment plan that further complicates your situation.