Settle Your Debts Without a Debt Settlement Firm
This is a guest post from Frank Collins. Before you turn to a company that will take more off the top, consider settling your debts yourself.
Who says you have to hire a debt settlement firm to settle your debts? If you want to save money on debt settlement fees or you just want to have more control over the settlement process, you can settle your own debts. Debt settlement companies can’t do anything for your debts that you can’t do yourself with a little know how.
How Debt Settlement Works
The gist of debt settlement is that you get your creditor to accept a one-time, lump-sum payment that’s some percent less than the balance due as satisfaction for your debt. Once the creditor accepts the offer and you make payment, the rest of the debt is cancelled and you won’t owe anything else. Creditors often accept settlements that are 40% to 60% of the balance due and debt collectors commonly accept less than that. It’s all in the timing.
If you hired a debt settlement firm, you would immediately begin sending a monthly payment to the settlement company. The company puts those payments in a separate account until enough has accumulated to make a settlement. When you settle your own debts, you’ll do the same thing. Stop paying your accounts and instead start putting your payments in a separate checking account. The more you can set aside, the faster you can settle debts.
Unfortunately, you do have to stop making payments on your accounts if you want to make a settlement. The goal is to convince the creditor that you can’t afford to keep making payments and that you’re at risk of defaulting or filing bankruptcy. In which case, the creditor would get much less than the settlement offer if anything at all. You’ll never make the creditor believe that’s true if you’re current on all your payments.
The goal is to settle your accounts for around 50% of the balance due at the time of settlement. Some creditors may accept a lower amount. Some may not settle for anything less than 70% or 80%. Others may not settle at all. Once you have enough money in your settlement account to settle at least one debt and the account is at least 90 days past due, you’re ready to start negotiating. Some of your creditors may even send automatic settlement letters to you around 90 days. If you have enough money set aside to settle these accounts go for it.
Making a Settlement Offer
When you’re ready to make a settlement offer, call your creditor and already have an amount in mind. Tell the creditor that you realize your account has been so delinquent and you’ve been wanting to catch up on your payments, but haven’t been able to do so. They’ll try to push you to make a payment arrangement. Say that you can’t commit to making consistent monthly payments right now, but were wondering if they’d be willing to settle the account if you could come up with the money. Wait for the creditor’s response. If they’re ready to negotiate, make your offer. However, if they refuse, then politely end the call and wait a few weeks before trying again.
Debt settlement is just negotiation. Know how much you can afford to pay and don’t commit to anything you can’t afford.
Frank Collins is a seasoned writer with over three years of experience writing for popular online publications. His areas of expertise include both personal and business finance. If you want to learn more about ways to take care of your debt, take a look at the debt settlement blog.
