How to Negotiate a Debt Settlement on Your Own

How to Negotiate a Debt Settlement on Your Own
  • Opening Intro -

    We all have times when it's hard to pay the bills.

    Fortunately, there are many ways to resolve debt problems, and settling is one of them.

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Today, we’ll tell you how to save money by negotiating settlements with your creditors by yourself.

What Does it Mean to Settle Debts?

Settling is not debt consolidation. Settling your debts means that either you or a debt relief/debt adjusting company negotiates with your creditors to:

  1. Reduce the principal balances
  2. Lower the monthly payment amounts
  3. Waive the interest charges

What are the Pros and Cons of Doing Debt Relief through a Company Versus DIY?

  • The pros of working with a debt relief company are:
    1. Not having to deal directly with creditors
    2. Getting better deals because of their clout and experience
  • The cons of working with a debt relief company can be:
    1. Paying 15 to 25 percent fees
    2. Taking three to four years to complete a negotiation
    3. Leaving more accounts unresolved
  • The pros of settling your debts yourself are:
    1. Quicker processing time
    2. No fees to have to pay
  • The cons of settling your debts yourself are:
    1. Having to negotiate with your creditors yourself
    2. Not having the clout or experience to get the lowest possible rates
  • Unfortunately, whether you hire it done or do it yourself, settling will:
    1. Worsen your credit score by about 100 points
    2. Create a tax liability for you
    3. Not work on some creditors

What are the Steps to Settling Your Debts Yourself?

DIY debt settlement can be done without an attorney. Here are the steps:

  1. Research –

    Know your creditors’ settlement policies.

  2. Save up some money –

    Creditors expect a lump sum payment of 40 to 50 percent of the balance. Some will accept a payment plan, though.

  3. Prepare your offer –

    Leave yourself plenty of negotiating room.

  4. Get a written agreement –

    Creditors can’t deny the agreement was made.

  5. Pay your bills on time –

    Honor the agreement, but also monitor your credit report.

  6. Prepare to pay taxes –

    Forgiven debt is considered taxable income.

What are my Other Options?

Many people assume they must declare bankruptcy when they actually have other options. Bankruptcy would negatively affect your credit score worse than any other choice.

Transferring credit card balances is an option. You would be wise to only transfer credit card balances to 0% interest rate cards if you can pay the balance off before the introductory rate expires.

Earning more money will always help pay off the debts. Find a part-time online job to dramatically improve your situation. If you are not yet delinquent on your bills, credit counseling and/or debt consolidation would be better options than settling would. That’s because both options pay creditors in full.

A credit counselor can stop the late fees and endless collection efforts. He can look at your financial situation, help you formulate some personal goals to improve your financial situation and work out a payment plan for you. He just won’t be able to negotiate a debt reduction.

Debt consolidation brings all of the debts together, creating just one large monthly payment due. Your credit score will increase as you keep making timely payments.

other valuable tips:

How Can I Tell a Good Debt Relief Company from a Bad One?

If you choose to take the debt relief route, you’ll need to find a reputable and reliable company. Otherwise, you’ll end up with a company that:

  1. Advises you to stop paying on your credit card bills so as to encourage settlement
  2. Doesn’t have the experience to know which of your creditors will settle, which won’t, and therefore whether or not they’ll be able to settle the majority of your debts
  3. Promises to settle all of your debts at a particular reduced percentage but can’t
  4. Promises to stop all collection efforts but can’t
  5. Charges fees upfront

You’ll benefit the most if you can pay debtors back in full. But if you need to settle your debts, you should either hire a reputable company or settle it yourself.

Image Credit: negotiate a debt settlement by envato.com

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Consumer Tips reference:

GUIDE: how to reduce personal load debt

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