Tips on talking to creditors when you can’t pay your bills


URBANA, Ill. — Don’t wait for your creditors to call you about unpaid bills. Instead contact them to explain your situation, said University of Illinois Extension consumer and family economics educator Lois Smith.

“Rather than begin expensive collection procedures, most creditors would prefer to receive smaller payments on a regular basis,” Smith said.

She noted creditors will be more cooperative if you’ve paid your bills on time in the past.

How to begin

To begin, do your homework before calling or writing.

To help with this process, read the factsheets on which bills to pay first and establishing a spending plan at

Once you know how much money you can afford to repay, contact each creditor, explain your family’s situation and ask their assistance in working out a solution.

Be prepared to explain:

– – The reason you can’t pay.

– – Your current income and prospects for future income.

– – Other obligations (bills) you have.

– – Your plans to bring this debt up-to-date and keep it current, including the amount you’ll be able to pay each month.

“If possible, visit local creditors in person — the loan officer at your bank or credit union, the credit manager of local stores and the budget counselor at the utility company,” Smith said.

“Contact out-of-town creditors by phone or letter, writing down the name and title of the person you talked to. Follow the conversation with a letter summarizing the agreement and keep copies of your correspondence as well as any reply,” she said.

Sample letter

Smith advised using the sample letter to creditors at as an outline when talking to creditors.

To find the letter, click on “Managing Your Finances,” then “Talking with Creditors.”

“As you negotiate with each of your creditors, don’t agree to any plan simply to get off the hook,” she said.


Here are some alternatives to consider when you are negotiating:

– – Reduce the monthly payment.

– – Refinance the loan.

– – Defer a payment for a short time if you expect your income to increase soon.

– – Pay only interest on the loan until you can resume making monthly payments.

– – Voluntarily surrender or give back an item purchased on credit.

– – Sell the item and use the cash to pay, or partially pay, the debt (you are still responsible for any remaining balance).


Tell your creditors about any changes that may affect your payment agreement. If you fail to follow the plan, they’ll be less willing to work with you in the future and you’ll hurt your chances of getting future credit, she said.

“But if you owe a large amount of money, and your creditors won’t accept reduced payments, you may have to consider more extreme alternatives, such as filing bankruptcy,” she said.

If you miss a payment, eventually your bills may be turned over to a collection agency.

The Fair Debt Collections Practices Act prohibits collection agency callers from using abusive language, they can’t call you at unusual hours or threaten criminal prosecution and they can’t discuss your financial situation with others, she said.

Call from creditor

If you receive a call from a creditor or collection agency:

– – Ask the caller’s name. Get the name of the creditor and the name, address and telephone number of the collection agency. Note the exact amount they say is due. And write down the date and time of each call.

– – Stay calm. Explain your financial situation and how much of the bill you are able to pay, according to your repayment plan.

– – Dispute debts in writing. If you believe you don’t owe the amount claimed or otherwise disagree, make your reasons known promptly in writing to both the creditor and the collection agency. Request a written statement of your account and always keep copies of your correspondence for future reference.

Legal action

Creditors can take several kinds of legal action against you. They may file a complaint, initiating a lawsuit, in which case you’ll receive a summons.

The case may be settled in small claims court, depending how much is owed. If you don’t respond or lose the case, the court will issue a judgment against you for the amount you owe plus court costs and attorney fees, she said.

Other actions

Other actions creditors can take against you include:

– – Acceleration. The entire debt is payable at once if you miss a payment. The courts can force you to pay by seizing your property and selling it.

– – Repossession. The creditor can seize the item you bought or the property you used as collateral for the loan. If its sale brings less than you owe, you must pay the difference.

– – Wage garnishment. A court order requires your employer to withhold part of your wages and pay your creditor.

– – Foreclosure. If you fail to make your mortgage payment, the taxes or insurance on your house or other property, the lender can force the sale of your home/business to pay off the loan.

You are responsible for the legal fees of foreclosure and the difference between the selling price and the amount owed on the loan.


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