When to Consider Renegotiation
If a debt starts causing financial pressure, jeopardizing essential payments, or forcing you to juggle multiple credit card debts, it might be time to contact your creditor for an agreement. Ángel González, General Director of the National Organization in Defense of Debtors, emphasizes that “the first step is to acknowledge the problem.” Many people hesitate to seek help due to pride or embarrassment, allowing their financial difficulties to worsen before reaching out to creditors.
You can initiate negotiation directly with the financial institution or wait for them to contact you. According to Mexico’s National Commission for the Protection and Defense of Financial Services Users (CONDUSEF), renegotiation can be conducted through a collection agency, provided it’s registered in the Collection Agencies Registry (REDECO).
If renegotiation involves a current debt (with no delays of three months or more), better payment terms or lower interest rates might be negotiated. However, if the delay exceeds three months, creditors may demand full payment, and renegotiation should focus on arranging payment terms or debt reduction.
Requirements for a Formal Process
To ensure a valid and transparent renegotiation, both the creditor or their collection agency and the debtor must adhere to CONDUSEF regulations.
“Whether negotiating directly with the creditor or through a collection agency, the debt and intention to negotiate must be communicated in writing via official channels. Emails should be institutional and include verifiable contact information,” advises González. He also recommends disregarding emails with generic domains and verifying contact details of the collection agency.
Debtors can present counteroffers whenever a collector proposes an agreement. Once an agreement is reached, it should be documented in a written ‘convenio’ specifying the payment amount, account details, and whether the payment covers the entire debt or only a portion.
Both the Debt Defense Organization and CONDUSEF warn against accepting mere verbal promises, screenshots, or informal documents for a legally binding agreement. González estimates that 70% of collectors’ promises are false.
Consequences of Renegotiation
Renegotiation, like any agreement, will impact credit reports from Credit Information Bureaus (SIC). Debt reductions and new terms may lower your credit score, affecting future credit access. However, falling into delinquency is worse.
“Although you might not qualify for certain credits initially, adhering to the new agreement can gradually restore your creditworthiness. Financial institutions may eventually offer you smaller credit lines, enabling you to rebuild your credit history,” explains González.
Successful renegotiation also prevents legal proceedings, which could lead to asset seizure and legal defense costs.
Key Questions and Answers
- When should I consider debt renegotiation? When your debt becomes unmanageable, causing financial strain or jeopardizing essential payments.
- How do I initiate a formal renegotiation process? Communicate in writing via official channels with your creditor or their collection agency, ensuring verifiable contact information.
- What should a valid renegotiation agreement include? A written ‘convenio’ specifying payment amount, account details, and whether it covers the full debt or a portion.
- How will renegotiation affect my credit score? It may lower your creditworthiness, but falling into delinquency has worse consequences.
- What precautions should I take during renegotiation? Be wary of false promises; ensure all agreements are in writing and verifiable.
