How to Negotiate Debt Settlement on Your Own
When you have large amounts of debt, the idea of paying a debt settlement company seems daunting. Efforts to cut costs, as much as possible, makes sense for someone in this position. Even though you may not be able to achieve the best results, you can negotiate a debt settlement on your own.
Settling your debts is certainly a more preferred option than filing for bankruptcy. So, you are already heading in the right direction. If you are debating the idea of negotiating debt settlement yourself, there is a lot to learn. This guide will detail how to negotiate with creditors for debt settlement and offer our best advice.
What Is Debt Settlement?
The process of debt settlement negotiation involves contacting the creditor and asking them to accept less than the full balance owed. If negotiations are finalized successfully, you will have a lower amount of debt. There are no set rules regarding what reasons you need to present, but generally, you need them to believe there is no way for you to repay the debt fully. To avoid dealing with debt collectors, creditors may agree to cut 30% to 70% of the outstanding balance of your debt.
It sounds too good to be true. However, creditors have a full right to refuse your offer. Therefore, you need to be smart and build a strategy to sway them in your favor. There are benefits as well as drawbacks – essentially, it will take a lot of research. We’ll primarily focus on how to settle the debt on your own, but you may have a better experience with a settlement company.
Settle Debt on Your Own: Step by Step Guide
For non-professionals, it is important to learn the ins and outs of the settlement process. Here are the steps on how to negotiate a debt settlement on your own. With enough savvy and determination, you may be successful in your venture.
Step 1: Determine If You’re a Good Candidate
Debt consolidation will not suit everyone’s financial situation. Before you dive into the negotiation process, go through this checklist:
- Have you considered other options? There might be alternatives, such as credit counseling, that will bring better results and less damage to your credit score.
- Is your debt reported to a credit bureau as past due? On average, lenders sell the debt to a third party around five months after it becomes delinquent. This might be the perfect time to ask for a settlement.
- Can you afford to settle? You might be asked to make the payment in a lump sum. At the very least, you will need money for partial payments.
- Are you a good negotiator? You need to have the personal skills to pull the settlement off. Confidence is key.
Step 2: Know Your Terms and Whether You’re Willing to Change Them
You need to focus on the percentage you want to wipe out and what the lender will put on your credit report.
Before you begin discussions, decide what you want to offer initially. Since you can’t count on the lender necessarily agreeing to it, have a back-up plan. Can you make changes to the original percentage? If so, how much exactly?
Step 3: Get in Contact and Have a Clear Narrative
Making a call is not always an easy task – depending on how lucky and persistent you are. You may be able to resolve the issue in a few calls. However, not all lenders will be accommodating when it comes to debt settlement negotiations. So, be prepared to show assertiveness and willingness to get to a mutually beneficial agreement.
When you do get in contact with the representative, you need to share your story correctly. Show the lender that you are unable to make full payments because of your financial situation. If they believe that it is either partial payments or no payments at all, you may find a middle ground.
Step 4: Discuss All the Details and Finalize the Deal
Don’t let the details slip through the cracks. There are too many stories about unsuspecting citizens getting into financial trouble because of some clause in the contract. An agreement holds both parties accountable – thus, it protects both your interests.
Tips on How to Negotiate a Debt Settlement
To avoid making mistakes and further hurting your situation, take a look at these tips and tricks for debt settlement. They touch on everything from the technical details to the right mindset:
- Understand your rights – educate yourself on both state and federal law. Lenders and debt collectors could try to take advantage of your ignorance since they don’t want to lose money. Start with the FDCPA (Fair Debt Collection Practices Act) and go from there
- Request debt validation – don’t fall victim to fraudsters when you are contacted by an alleged collector. These days, producing a fake billing statement is very easy. Under the FDCPA, you can check the validity of the document and prove the origin of the debt
- Find out the statute of limitations of debt in your state – depending on where you live, there will be a slightly different window when a collector can file a lawsuit. If it has been long enough, you can discuss partial payment or whether they can remove negative information from your report
- Learn what factors affect your credit score – debt settlement can make an impact, which you should assess in advance. Don’t go into negotiations before you fully understand the consequences after they accept your offer
- Calculate the debt-to-income ratio – determine how much you can afford to allocate to debt repayment. Even if you want to finish everything quickly, you need to be responsible with your budget. If you don’t leave enough money for your daily life, you might go into debt again.
- Have a legally binding written agreement – when the challenging part has successfully negotiated the terms, and the agreement is done, put everything in writing. Make the document specific and include dates, your account information, original creditor, etc.
DIY Debt Settlement vs. Debt Settlement Companies
The obvious benefit of knowing how to negotiate credit card debt settlement yourself is that you reduce your expenses. But, just like any industry, you may achieve better results with a professional. Chances are you have never dealt with debt negotiations before. Are you sure you know the legalities or how to determine appropriate offers?
Debt settlement companies may offer different solutions. For example, you may even need other debt-relief alternatives. You wouldn’t know that unless you had relevant experience and had reviewed hundreds of other cases.
It is possible to settle credit card debt on your own. However, you need to decide whether it is the right choice for you. If you have considerable debt on your hands, no leverage, or problems with multiple creditors, you might need help. A licensed professional has your best interests in mind. By working with the right, competent person, you will avoid stress, shorten the process and, most likely, get a much better deal.