When you need some breathing room for your finances, one option is to negotiate with your debtors. Here are some key strategies that we’ve collected and how to do it:

1. Find out if your loans have balance conversions and staggered payment plans. Then, start negotiations.
2. If you’re looking for debt restructuring, focus on reassuring the bank or a creditor that your money troubles are temporary and you can pay it back during an agreed time.
3. Restructuring debts will make it harder for you to borrow money in the future, use this option strategically.
4. If you’re restructuring debts, you have to be ready with “extra cash” to pay them back down the line later.

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The financial impact of COVID-19 spares no one. If you have loans and other debts, you’re one of many people looking for ways to solve this issue.

Count yourself blessed if you still have a regular source of income during the COVID-19 crisis. For those of you who have found themselves needing cash during this pandemic, you need to understand your options, and we’re here to offer some ways on how to negotiate your debt.

But before you continue, borrowing money at this time carries risks, such as higher interest rates. If you’re already in debt, you are also entering a vicious cycle of more debts. Thus, if you can, start with looking for a breathing room.

Negotiating payment of loans is less straightforward.

When you agree to take a loan, you are borrowing a big amount of money and you pay it back over a long period of time in regular payments called amortizations. Amortizations consider both the amount you borrowed to, for example, buy a house or a car, plus the interest you’re being charged. If you miss payments, you have to pay it on top of more interest in the form of arrears

Renegotiating your debt payments

During the imposed community quarantine, the national government required banks and other lending institutions to offer a grace period for payments through the Bayanihan to Heal As One Act. This offered you some breathing room to make payments for loans that are due during that period.

However, there is another option that you can consider: a debt restructuring.

Debt restructuring happens when you ask your bank or a similar lending institution to modify the terms of your loan to temporarily reduce the burden of paying it during a previously agreed schedule so you can recover financially.

This may involve the bank giving you a few months where you pay less or no amortizations or even extending the term of your loan so you have more time to pay it back, or any combination of these options.

Now, if you’re going to negotiate for a restructuring, you have to do the following:

• Convince your creditor that your financial difficulties are temporary and you will be able to recover and continue paying your loan given enough time.
• Avoid appearing destitute or broke. Show that your situation is temporary and that you can deliver the required amount on a new schedule. The key here is to reassure your debtor that you will be able to pay your debt given new terms.
• To improve your chances of getting a new term, you can do two things:

1. Show a way for you to make payments in the meantime. This can be in the form of letting a family member like your spouse or sibling shoulder your payments in the meantime. This gives your debtor the reassurance that they will be paid back.
2. Prove that you have a feasible way to fully pay your debt in the future. For example, if you lost your job or have issues with your regular source of income as a freelancer, you can share your actions and plans on how you're dealing with this setback. If getting back on your feet just takes a matter of time, your chances are better.
   • Prepare documents and other forms of proof that can support and show your financial situation.
   • If you agree to restructure debts, you also have to be ready with “extra cash” to pay them back down the line later.

Approaching the bank prepared shows your serious intent but application of debt restructuring will ultimately still be subject to the approval of the lending bank.

Be mindful

Negotiating a loan restructuring is serious business because it means you’re unable to meet your payments based on the terms you agreed to at the start.

Once you’re granted one, it will be on your record, which will then make banks less willing to lend you money in the future. As such, use this option strategically.

Finally, negotiating with your debtors has some psychosocial impact. How? Admitting you’re having difficulty with your debts can be humbling, even humiliating for some.

However, acknowledging it is a sign of maturity and financial self-awareness. Should you find yourself in a situation, then it’s good that you’re taking steps to deal with it. It will entail some sacrifices on your part, but seeing as you’re under unprecedented circumstances, you have to do what you can so that things can get better.

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Note: For Metrobank clients, you can get in touch with your branch of account if you are interested in restructuring your debts.

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This article is part of a collection of stories and practical financial tips that are published with the goal to help people learn from the experiences of others, and to pick out lessons on personal finance and sound money habits beyond the pandemic.