Is It Wrong to Negotiate Debt?

by Neal Frankle, CFP ®

negotiate debt

Do you deserve your own personal bailout, or is it wrong to negotiate debt you freely took on? Do you get a little resentful when you see other people negotiate their way out of the debts they created themselves? At the moment, I’m really struggling with this issue. If you loaned someone money, wouldn’t you expect to be repaid? You want the other person to live up to the agreement…right? You certainly don’t want to get into the personal debt collection business.

A few days ago I interviewed Ken Golde on Wealth Pilgrim Radio. He’s a gentleman who negotiated his credit card debt down from over $200,000 to less than $35,000. He even wrote a book about how he did it. I liked talking to Ken. He’s a smart cookie and was willing to take on my tough questions.

He made some interesting points and explained why he felt it was fine for folks to renegotiate their debts. But I still don’t know…something just doesn’t feel right to me.

I know I have a skewed opinion on this matter. I’m not facing the debts that Ken did. It’s easy to have an opinion when it’s theoretical – but when it’s personal, maybe it’s very different. Having said that, I realize that my blogging buddies (many of whom are in debt) don’t talk about renegotiating their obligations…they write about paying them off. I have a ton of respect for these folks.

Are we all just naïve? Do you think it’s OK to renegotiate debts? Does the cause of the debt make a difference?

While you are pondering that…

Let’s get to the Pilgrim Picks of the week!

I am very happy to announce that Monevator gets the Pilgrim Pick of the Pack this week.

He did an outstanding job explaining diversification and how it may not be all that it’s cracked up to be. I’m not sure if I’d draw the same conclusion from his work, but he did an outstanding job of demonstrating that asset allocation alone won’t protect your investments. Well done, Mr. M!

Weakonomics wrote a great piece on some dumb moves by the oil producers. Unique perspective and well written. Me likey.

Lots of folks bash the credit card companies. Here’s another perspective I think you may want to consider. Thanks, Moolanomy.

Digerati Life comes in with a strong piece on loan modification firms. This ties in to my rant above. Maybe if you read this piece you’ll have a different opinion on the issue.

Green Panda makes a decision about home ownership. A timely subject what with rates and prices this low. Is it time to take the plunge?

Baker has a new perspective on timing the markets. Does crossing the 10,000 mark on the Dow mean anything?

I’m fascinated by the similarities between food and money. One doesn’t taste as good as the other it’s true. But if you’re like me, you find that the struggles are similar. Here’s an interesting read on the subject.

Enjoy your weekend. I’m going to try to make mine meaningful…



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{ 21 comments… read them below or add one }

Roger January 15, 2010 at 4:55 PM

No way. It is immoral to run up debt because you can’t control yourself with credit cards and then bankrupt on them or negotiate the balance down. I have over $45K in CC debt and while it’s tempting to call one of the many places that offer debt relief, I got into it and I’ll get myself out.


Ways To Love Well November 13, 2009 at 8:19 AM

VRy interesting to read it 😛 😀


Financial Samurai October 19, 2009 at 5:47 PM

Neal – good points. I used to be annoyed and angry with people who game the system. Not anymore, b/c it’s a never ending cycle and therefore, you’ll have never ending annoyance! :) Instead, I’ve come to accept the way things are, and try to learn from these guys who got themselves out of debt by any means possible.

Who knows, I may fall into difficulties in my future, so it’s always good to learn new things. This guys action sets a precedent for future cases.

Best, FS


Neal October 19, 2009 at 5:06 AM

Financial Samurai,

OK….you make some really strong points about self-interest. I get your point about the blogs advertising saying one thing and the editorial saying another.

I do think there is a huge difference between that and getting $165k for “free” but I do see your point.

I don’t really feel envious at all…..quite the opposite. I feel really fortunate not to be in the same position.

Maybe it’s all about self-interest but who is to say that living up to your promises and responsibilities isn’t consistent w/that?


Financial Samurai October 16, 2009 at 2:17 PM

Neal – There is totally nothing wrong with negotiating down your debt by $165,000! In fact, BRAVO to him for being able to rack up that much CC debt and get the rest forgiven!

Wouldn’t we all love to have a free $165,000? Is is those people who care about fixing their finances who work on gaming the system, and doing everything they can to free themselves.

Now he is monetizing his success through a book. It’s much like so many personal finance blogs who are pimping credit card deals or debt consolidation services while talking about the evils of credit cards! Everybody is in it for their own good, and nobody has the right to tell them how to run their personal finance lives.

I read a lot of blogs, but the ones that hock this trading account or that credit card too much, I begin to stay away. It’s a free market. There’s lots of us out there, and we shouldn’t feel envious of this guys personal bailout at all!

Hope to see you at FS one day.



Neal Frankle October 16, 2009 at 2:09 PM

I’d have to agree completely with Mike.


Mike October 16, 2009 at 1:08 PM

To Daniels comment about cable TV or home phone price negotiations…As long as the price is agreed upon from the start, them I’m ok with it. When you negotiate down a CC after the fact, one side is getting less/more for their money. If I agree to sell you a service at a certain price because we agreed upon it after negotiation, what’s to complain about? Both parties chose to participate in that negotiation, and both partied felt good about the agreed upon price.


Neal October 16, 2009 at 11:47 AM


Congratulations! Now…to the point.

Ken (the man I interviewed) ran up his CC debts because of a failed business.

But, why should that relive him of the responsibility? Again, I’m not trashing him. I don’t know what I’d do in his place. But we have a system that allows for success and failure.

If people can start a business without having the consequence of paying for it failing…..where are we? Everyone would try it and waste tremendous resources.

I think the reason why the USA is (or should I say has been) successful is because we allow people to benefit by being brilliant and we allow them to fail too (regardless of who is at fault).

I think we have to look at ALL the fall out from allowing (even business owners) to walk away.

This is just my opinion. Not trying to convince anyone. I think it’s an issue that many of us secretly stew over.


Neal October 16, 2009 at 11:43 AM


I think you bring up a very valid issue. The CC companies have gone nuts. They’ve abused the system. I have no sympathy for them in the least.

But at the same time, I just think it’s really important for each of us to take responsibility. I’m sure you agree w/me. So, bottom line, it’s another one of those tricky subjects.


Susan D. October 16, 2009 at 11:09 AM

I don’t know a lot about this subject but I would have to think that most of the debt is the high interest charges and late fees that have compiled over time. I’m guessing that the ending balance after negotiation is really the principle of what was charged. I don’t agree with the concept of debt forgivness but I have to say that the credit card companies have gone ‘hog wild’ with fees and interest. It’s the trap they set when you apply for a card in the first place.


Monevator October 16, 2009 at 10:09 AM

@Daniel, to your last point I do get annoyed about that. I also get annoyed by people who verbally escalate and complain to get what they want. I feel they’re raising the bar for everyone, so straightforward plain dealing doesn’t get you anything at all.


Monevator October 16, 2009 at 10:08 AM

I’m with you Neal – it bothers me.

I’m the same when people declare themselves bankrupt and walk away from debts, without any of the stigma or consequences of the old days, at least here in the UK.

(To be clear I’m talking about people who become bankrupt by wildly over-consuming, not people who try to launch businesses that go wrong or similar).

Daniel’s comment about insurance is a good one, though. And banks and other service providers definitely pushed credit recklessly in the boom.

Very pleased to be Pilgrim of the Week – thanks!


Mike October 16, 2009 at 8:59 AM

I do find it bothersome that people can get away without paying the full price for an item. If I were to buy on credit a new entertainment center for my home, newest/best TV, surround sound, theater seating, and TV cabinet…I could easily spend $10,000. So should I do this knowing that if I never pay the CC that I could at some point in the future negotiate the overall price of my splurge down to half of what I spent? I buy things I can afford. I don’t use credit, and I wish more people and our government only spent the money they had in their wallets.


Neal October 16, 2009 at 8:47 AM

An excellent point and true.

I don’t spend much time worrying about this stuff… just came up because of the interview and also….(I must admit) I can’t stand those radio commercials telling folks not to pay their debts etc. Ticks me off.


Daniel October 16, 2009 at 9:34 AM

How about this: Don’t you think it bothers those who pay full price for cable, phone, etc. that there are others who get better deals by negotiating and threatening to leave?


Neal October 16, 2009 at 8:17 AM

Yep…that’s exactly it….

If the cc companies charge off $$$ to cover bad debts…we pay for it because they charge merchants higher fees to cover their costs and the merchants charge us more for the goods/services to cover those fees.


Daniel October 16, 2009 at 8:52 AM

Haha right. People shouldn’t be OFFERED an easy way out, they should have to work for it. Similar to the student who does poorly on a test but goes directly to the teacher and requests extra credit.


Neal October 16, 2009 at 7:40 AM

Right….I respect your opinion. I suppose it could go either way.

For your roommate it worked out well. So, you don’t get upset that you are, in some ways, paying for other’s mistakes?


Daniel October 16, 2009 at 8:30 AM

Yah, when you tell it to me, of course it stings a little. But if we get upset about things like these, we’ll be grumpy more often than not. What about insurance? Are you angry about paying hundreds of dollars for car insurance even though you’re unlikely to use it?Sure, people who are higher risks pay more, but the low risk people who rarely use the insurance are the ones whose premiums go to cover the less responsible.


Daniel October 16, 2009 at 8:08 AM

Do you mean in terms of higher fees so that they can cover others’ mistakes?


Daniel October 16, 2009 at 7:18 AM

I don’t think there’s anything wrong with it, especially for large balances. Paying off a huge sum is probably more rewarding personally, but people sometimes make mistakes and seeking help should be rewarded in some way. I’ve heard stories, however, about people who have gotten into large amounts of debt multiple times, and I don’t feel sorry for those people.

A roommate of mine was in debt but negotiated down to about 25% of the original amount. It has helped him get serious about his money and with a large pile, I would not have been surprised had he let it grow instead of attacking it. Still, it’s not as if there was no punishment: his credit is very low.


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