With the advent of the current recession, many people have found themselves swamped in debts that they can no longer pay off under the terms originally agreed. Whether this is due to losing a job, a decrease in pay, or added expenses, this situation can be very troubling. What many people fail to realize is that a debtor can negotiate with the lender to receive reduced payments, a removal of fees, a more acceptable payment schedule and other terms that can make repaying the debt more manageable.

In the absence of criminal liability for debt and debtor prisons, the lenders realize that their options are limited. If a debtor refuses to pay a debt, the lender only has a few courses open to them. Reporting the default to a credit bureau hurts the borrowers credit ranking, but does not necessarily result in repayment. A lender may also resort to seeking a remedy in court, but this process is time consuming and expensive and only makes sense for large loans. Further, a court remedy may not necessarily result in repayment.

Because they are aware of these limitations and the fact there is no guarantee of payment many lenders have become open to renegotiating loan terms and payments. They know that this route has a greater chance of having the outstanding balance repaid. Of course, lenders wish to regain as much as possible from the outstanding loan amount without losing any more money to courts and collection agencies. Negotiating reduced payments and loan terms can make it possible for the defaulting debtor to pay off their debt and begin rebuilding their credit standing.

Therefore, negotiating more tolerable terms for an existing debt is in the interests of both the lender and the borrower. Most professional lenders understand this reality, and though ideally they want the loan repaid by the original terms, renegotiating these terms is a lesser evil than a default and collection efforts. In fact, many large credit card companies and banks maintain special hardship units whose sole purpose is to listen to appeals for relief and renegotiate the terms of loans.

Renegotiating is an uncomplicated process that starts with contacting the company holding the loan note that needs to be renegotiated. Asking in a straightforward way for the hardship department or for someone who can renegotiate loan terms will ensure that you are put in touch with the right person. As you talk with this person, carefully and clearly explain your situation in as much detail as possible, and make sure you have a plan you can offer for their consideration. Avoid becoming aggressive or threatening with this person in any way so that they know you are making a good-faith attempt at repaying your debt.

While the process of renegotiating a loan may take some time and the lender may require documentation and other evidence to substantiate claims of hardship, the final result can be very rewarding. Further, if the debtor is truly incapable of paying back the loan under the original terms, there is absolutely nothing to lose. The worst the lender can do is refuse to renegotiate the terms, meaning that the result would be the same as it would be if the borrower had not made the effort at all.

Wendy Polisi is the founder of Credit Repair College and Finance the Dream. Finance the Dream is the nations leading provider of Rent to Own Homes,offering homes throughout the United States. For more information on free credit repair please visit her at Credit Repair College.

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